Portugal budget: PM Passos Coelho seeks alternative cuts

Union protest in Lisbon, 22 March
Image caption The austerity measures are already deeply unpopular

Portugal's prime minister has said a court ruling striking down parts of his government's budget means he will have to make other deep spending cuts.

Pedro Passos Coelho said social security, health, education and public enterprises would have to be cut.

This would allow the country to avoid a second eurozone bailout, he said.

The European Commission warned it not to depart from the bailout terms, and said carrying out the agreed programme was a pre-condition for further help.

"Any departure from the programme's objectives, or their renegotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens," it said in a statement.

The BBC's Alison Roberts in Lisbon says the new round of cuts to welfare comes as ever more people in Portugal are relying on benefits. Unemployment is at a record high and the government does not see it peaking - at around 19% - until late this year.

The Portuguese Constitutional Court struck down more than 1bn euros (£847m; $1.3bn) of savings that the right-of-centre government had said were needed to meet the terms of its existing bailout.

Portuguese shares fell on Monday in response to the political uncertainty.

'Only option'

In a statement to the nation on Sunday evening, Mr Passos Coelho repeatedly used the phrase "national emergency" to describe Portugal's situation.

He said the ruling striking down the budget's suspension of holiday bonuses for public sector workers and pensioners - about 7% of their annual income - meant it must find alternative savings or seek a second bailout.

The government would, he said, do everything in its power to avoid having to ask its European partners for more aid.

Since tax increases were out of the question after the unprecedented increases already in the budget, he said, the only option was to cut back on other public services.

"Today, we are still not out of the financial emergency which placed us in this painful crisis," he said.

"After this decision by the Constitutional Court, it's not just the government's life that will become more difficult, it is the life of the Portuguese that will become more difficult and make the success of our national economic recovery more problematic."

Future 'very bleak'

Opposition leaders have accused Mr Passos Coelho of using the court ruling as an excuse to press ahead with cuts to public services that he was planning anyway.

They say the government must resign, having lost credibility after two budgets in two years were ruled unconstitutional.

An English entrepreneur, living on the Portuguese island of Madeira, said "the future looks very, very bleak and panic is in the air".

Speaking to BBC News, Matthew Waddell said he was anxious to sell his boat charter business.

"Things are very hard, with the tax and VAT increases. You can feel an air of panic building amongst the public, people are starting to talk about withdrawing their savings, after what has happened in Cyprus.

"People don't believe in the government anymore. In my opinion there are too many people working in the public sector.

"The last two years have financially crucified the population. Madeira is pretty much the worst indebted part of Portugal," he said.