The top priority for Pedro Passos Coelho, the incoming Prime Minister of Portugal, is to ensure that his country sticks to the austerity measures mandated by the IMF’s and EU’s 78 billion-euro ($114 billion) bailout. That won’t be easy.
Portugal’s economy is a mess. Unemployment is over 12% and the economy is projected to shrink this year. The austerity measures the country needs to implement this year are brutal, as Bloomberg News notes:
The aid package calls for spending reductions for 2012 and 2013 amounting to 3.5 percent of GDP, while revenue increases will represent 1.4 percent of output. The government will freeze public workers’ salaries through 2013 and cut pensions of more than 1,500 euros a month, while tax deductions will be limited. Portugal also agreed to reduce workers’ severance payments, phase out rent control and merge some of its municipalities.
For now, investors are willing to give Passos Coehlo the benefit of the doubt. Portuguese bonds rose Monday though sovreign paper yields are as high as they were since the bailout, indicating continued investor skepticism about he country’s prospects. That attitude is understandible considering that unions, which helpeed oust the previous government, are threatening more unrest if Passos Coehlo institutes austerity policies that are not totheir liking.
In other news, budget battles in U.S. states are coming to a boil.
North Carolina Gov. Bev Perdue ( D) told reporters Monday that she isn’t being “coy” about whether she will veto the $19.7 billion budget passed by the state Legislature which she has repeatedly criticized for descimating public and higher education.
More than 13,000 positions would have to be eliminated, including 9,300 in the public schools, if the spending plan for next year is implemented. Teachers’ unions are livid. Republicans are equally as mad. One legislator, Rep. Mike Stone, was furious that his daughter wrote him and other legislators to urge them not to cut the education budget. “As I read through this (letter), anger completely shot through me, and I was trying to hold myself together. (It’s unconscionable) to know any education system would use a daughter against her father,” Stone told a local TV station WRAL.
Meanwhile, the waring sides in Minnesota appear to be making nice. Republicans, who have questioned the fiscal saviness of Democratic Gov. Mark Dayton, yesterday decided to extend an olive branch to their nemesis, acccording to Minnesota Public Radio.
Republican legislative leaders said they would agree to spend as much as Dayton on two areas of the budget — K-12 education and public safety and the courts. Republican Senate Majority Leader Amy Koch called it a major move for Republicans, especially since Dayton already signed another bill funding the Agriculture Department.
The two sides, though, remain $1.8 billion a part. Minnesota’s battle is similar to fights around the country. The governor wants to raise taxes to close a projected $5 billion budget deficit. Republicans are vehemently against any tax increases. Dayton has already scaled back his proposal twice. About 35,000 state workers are scheduled to receive layoff notices this week.