PM says Portugal at risk of 'collapse'

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LISBON, Portugal, April 8 (UPI) -- Portuguese Prime Minister Pedro Passos Coelho said a court ruling that rejected parts of an austerity budget put the country's financial comeback at risk.

EUobserver reported Monday spending cuts have helped the government's borrowing costs drop substantially with the spread between yields on Portuguese bonds and German benchmark bonds falling from close to 17 percent to under 6 percent.

But Portuguese courts on Friday rejected four of nine austerity measures, saying it was "a violation of the principle of equality and the principle of fair distribution of the public burden," to proceed with plans to cut pay and pensions for civil servants and to cut unemployment and health benefits.

The decision eliminated $1.7 billion in planned savings, the financial paper Diario Economico estimated.

Coelho said he respected the court's decision, but he also said it pushed Portugal closer to "collapse."

He also said failure to meet the terms of the present agreement was not an option because Portugal was "dependent on the funding of our European partners to make payments, provide services, pay salaries and pensions, to keep the welfare state."

The European Commission echoed that sentiment. "Any departure from the program's objectives, or their re-negotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens," the commission said in a statement.

The European Union has already provided $101.5 billion to Portugal in an emergency loan. Coelho, however, has said spending cuts are the only option, as raising taxes would slow job creation,

Portugal's economy is forecast to contract 3.2 percent in 2013, EUobserver said.

Unemployment is currently at 17.5 percent, Eurostat reports.

Socialist Party leader Antonio Jose Seguro called on Coelho to step down.

"The country needs a different exit strategy from the crisis, one that prioritizes economic growth ... The country is living in a social tragedy," Seguro said.

Coelho said the call for his resignation is "demagoguery," the newspaper reported.