LISBON (Reuters) - Portugal should renegotiate the terms of its international bailout because its program of budget cuts has failed and sent the economy into a slump, the head of the main center-left opposition said on Tuesday.
The Socialists, who agreed Portugal’s original deal with the IMF and European Union in 2011, have been calling for some time for an easing of the spending cuts and tax hikes that have driven the small euro zone member state into deep recession.
But until now they had stopped short of demanding new talks on the terms of the 78 billion euro ($103 billion) bailout.
“We need more time and a delay of interest payments,” Socialist head Antonio Jose Seguro told journalists. “There cannot be more austerity, there has to be a strategy of growth.”
He was speaking a day after Portugal’s creditors started their seventh review of the bailout [ID:nL6N0BP9WL] and after Italy’s inconclusive election renewed euro zone crisis fears.
The government is expected to request an easing of budget goals, but has also said it has plans for contingency measures to reduce deviation from these goals, mainly further spending cuts.
“I hope the government refuses proposals (by the ‘troika’ of lenders) for more austerity,” said Seguro. “A renegotiation implies more time for our budget consolidation and it means lower interest payments. The Portuguese cannot take any more.”
The economy is mired in its worst recession since the 1970s and unemployment is at record highs at just under 17 percent.
The center-right coalition government has a majority in parliament so Seguro’s demand cannot change policy, but his party is close to unions that are stepping up opposition to more austerity.
Prime Minister Pedro Passos Coelho said Tuesday the country does not need more time to complete its adjustment program.
“We do not need more time nor more money to fulfill the(bailout) program,” he told reporters without referring to Seguro’s comments. “We intend to conclude he bailout program by mid-2014 with the same financial package that had been envisaged.”
The government has argued that it has implemented all key reform and economic adjustment elements of the bailout even though it may need a new easing of the headline budget deficit goal this year and next year after a similar move in 2012.
Portugal had enjoyed a sharp improvement in market sentiment in the past few months as investors grew increasingly confident that the euro zone crisis was abating.
However, this week’s inconclusive election in Italy could turn the focus back to southern Europe’s weak economies and heavy debts. Portugal’s 10-year bond yields rose more than 20 basis points on Tuesday to 6.5 percent.
“Italy is a very important country and the election result is very worrying,” said Seguro.
Calls in Portugal for less austerity have risen sharply since the economy shrank more sharply than expected in the fourth quarter of last year. That prompted the European Commission to downgrade the outlook for this year to a slump of 1.9 percent from a previous forecast of a 1 percent contraction.
“We are not heading in the right direction,” said Seguro. “The prime minister has his back to the country.”
The government launched the largest tax hikes in living memory this year to boost revenues, which is likely to cut spending by the Portuguese further. ($1 = 0.7567 euros)
Additional reporting by Daniel Alvarenga, Sergio Goncalves and Andrei Khalip; Editing by Ruth Pitchford, Ron Askew