Portugal passes austerity budget

Image caption,
The Portuguese Prime Minister had threatened to quit if the budget is not passed

Portugal's parliament has passed an austerity budget to cut the country's high debt levels, after the opposition upheld an agreement with the minority government to abstain from voting.

The budget provides for measures to cut the deficit from 7.3% of economic output this year to 4.6% in 2011.

It will cut public spending and raise VAT - measures that have proved very unpopular with voters.

Prime Minister Jose Socrates threatened to quit if the budget failed.

The opposition Social Democrats oppose tax rises, preferring spending cuts, but agreed last week to abstain from voting.

Cost of borrowing

Confidence in Portugal's economy was hit hard over the summer during the eurozone debt crisis.

The rate of interest that the government had to pay to investors in order to borrow money, in part to service existing debt, rose sharply.

This led a number of leading credit rating agencies to downgrade Portuguese government debt, compounding the problem.

There were fears that if the austerity budget had not been passed, the cost of borrowing would again increase dramatically.

A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.

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