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Portugal's latest austerity budget wins approval

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[November 27, 2013]  LISBON, Portugal (AP) Portugal faces another tough year of austerity after its parliament approved more deep spending cuts that will hit government workers hard.

Lawmakers from the coalition government approved the 2014 budget proposal Tuesday in the face of fierce opposition from those indignant at the prospect of a third straight year of austerity as the country battles to avoid asking a second bailout.

The austerity measures, such as spending cuts and tax rises, pursued by successive governments over the past few years, have hit living standards in the country, pummeled the economy and sent unemployment up to 16.3 percent.

But the country has little room for flexibility after agreeing a 78 billion-euros ($105 billion) financial rescue in 2011 when it almost went bankrupt amid the debt crisis that engulfed countries sharing the euro currency. Since then, Portugal's creditors have forced it to enact the austerity in an effort to repair its public finances and convince investors that Portugal can live within its means.

Finance Minister Maria Luis Albuquerque said Tuesday that austerity must continue because "unfortunately we are still in a situation of crisis and emergency which demands exceptional measures."

Under the three-year bailout program, Lisbon is supposed to resume long-term borrowing in bond markets in the middle of next year. But despite years of belt-tightening, Portugal's credit rating is still classified as junk by the three main rating agencies, and the interest rate on the government's benchmark 10-year bonds is still hovering around the 6 percent mark a level still considered as expensive. The economy, meanwhile, has been in recession for most of the past three years.

If investors remain wary about lending to Portugal, the country will likely need more financial help a development that could prolong the 17-country eurozone's struggle to draw a line under its protracted debt crisis.

Lawmakers from the two parties in the center-right coalition government used their parliamentary majority to pass the 2014 budget as all opposition parties rejected the plan. Several thousand protesters gathered outside Parliament during the vote, which follows a recent spate of strikes that has increased pressure on the center-right government.

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The leader of the main opposition Socialist Party, Antonio Jose Seguro, said the budget "overburdens the Portuguese with yet more sacrifices."

Government workers are targeted in the latest batch of cuts. Their entitlements are viewed as overly generous by the bailout lenders the country's fellow eurozone members, European Central Bank and International Monetary Fund.

Public employees earning more than 675 euros a month will have their pay cut by between 2.5 and 12 percent and their pensions above 600 euros a month will be reduced by 10 percent on average. The cuts will affect some 600,000 workers about 80 percent of the government workforce.

Also, their working hours will be raised to 40 hours a week from 35, while their vacation days are reduced from 25 days a year to 22 the same as in the private sector.

And the retirement age for all workers will rise to 66 from 65 next year.

Critics of austerity say the strategy has backfired, compounding Portugal's economic difficulties.

The European Commission forecasts the jobless rate will rise to 17.7 percent in 2014 from 17.4 percent this year. It predicts modest growth of 0.8 percent next year after three years of recession.

[Associated Press; BARRY HATTON]

Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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