Portugal Socialists Say Enough Austerity, Government Sticks To Adjustment

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March 2, 2013 8:14 PM EST

Portugal would be left "rudderless in a storm of risks" if it does not complete budget adjustments under a bailout, its finance minister said, as the main opposition hardened its anti-austerity stance.

With the worst economic recession since the 1970s making tough budget goals harder to reach, the center-right government is under growing pressure to ease austerity measures imposed under the 2011 rescue programme.

The government says it is likely to request an extra year to meet budget goals under the bailout, but political opponents and some business leaders say much more time is needed. Meanwhile, inspectors from Lisbon's EU/IMF lenders this week started a bailout review, which is likely to last all of next week.

"If we abandon the (budget consolidation) strategy, Portugal would be left rudderless in a storm of risks," Gaspar told parliament on Friday shortly after the opposition Socialist leader demanded a change of strategy and an end to austerity.

The government's strategy is to reform the economy and cut the budget deficit as quickly as possible in order to exit the 78-billion-euro bailout as scheduled in the middle of 2014.

Socialist leader Antonio Jose Seguro, who met representatives of the troika of lenders - the European Commission, the European Central Bank and IMF - in the afternoon after the fiery parliament debate, said he felt they were more open to his proposals, but doubted they would act soon enough.

"There is a greater readiness to listen to and acknowledge the proposals and alternative measures presented by the Socialist party, but I'm afraid that it will not be enough for them to act in time to correct the strategy that has been followed," Seguro told reporters.

Earlier, he said the country must change course and launch the foundations for growth, lower some taxes and help the unemployed.

"At the very least you must recognize that you have failed," he told Gaspar during the parliamentary debate. "This is the last opportunity for the government to change its path."

He also reiterated that the center-left Socialists will not support a further 4 billion euros in state spending cuts in 2013-14, which the government says are crucial to create long-term budget balance.

The government is set to detail the cuts to officials from the troika during their current review of the economy.

Finance Minister Gaspar said he was still hopeful to find a dialogue with the Socialists.

"In June 2014 we will end our adjustment programme and we will enter a new phase," Gaspar said. "We have to start now to construct the institutional base for stability, to exercise our sovereignty. Dialogue and consensus with social and political partners must be part of that preparation."

The government has a majority in parliament but the Socialists have influence with unions that could step up opposition to budget cuts and other belt-tightening measures. Two protests are planned for the weekend against austerity.

Portugal's economic challenges have risen since the slump worsened in the fourth quarter of last year, prompting concern that the country is unlikely to start recovering in the second half of 2013 as the government hopes.

Gross domestic product contracted 3.2 percent last year and the government expects it to contract around 2 percent this year. Many economists say this year's downturn will be deeper than that after the government launched the largest tax hikes in living memory, denting consumer demand further.

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