August 29, 2013 10:06 pm

Court delivers blow to Portugal bailout programme

Portugal’s constitutional court has ruled that legislation enabling the government to fire public sector workers who cannot be retrained is illegal, blocking a reform that Lisbon sees as critical to meeting the terms of the country’s €78bn bailout.

The ruling announced on Thursday night came only five months after the court rejected public spending cuts of up to €1.3bn, forcing the government to rewrite this year’s budget to meet deficit reduction targets agreed with international lenders.

The decision to reject the bill on “public sector requalification”, which would have allowed the state to lay off workers permanently after they spent a year in reserve, means the government will have to rewrite a reform package aimed at cuts totalling €4.7bn.

It is the third time in just over a year that the court has rejected important government reforms that it judged to contravene the constitution.

The decision dealt another blow to Pedro Passos Coelho, prime minister, less than two months after his centre-right coalition was almost brought down by an internal rift over austerity measures.

Arménio Carlos, leader of the CGTP-Intersindical, Portugal’s largest trade union confederation, welcomed the court’s decision, saying the government had been given “three red cards in a year” and should resign.

The court’s ruling is also expected to renew concern among investors over the possibility of legal barriers derailing the three-year bailout programme, which Portugal is scheduled to exit in mid-2014.

Officials from the so-called troika of lenders – the European Commission, the International Monetary Fund and the European Central Bank – are due back in Lisbon shortly to assess the government’s progress with the adjustment programme.

The rejected bill was part of an extensive reform package agreed with the troika that seeks to make “permanent” cuts in public spending by cutting back state services and potentially laying off tens of thousands of public sector workers, particularly teachers and clerical staff.

In a letter sent to the troika in May, the government said it envisaged saving €894m over three years by retraining state employees and terminating job contracts.

The bill envisaged sending home workers that the government judged to be excess to requirements on reduced pay – 63 per cent of their salary in the first six months and then 50 per cent.

If they were not retrained and reallocated to other jobs within a year, they would, according to bill, have continued to wait for work without any pay or agreed to terminate their contracts with a right to compensation and unemployment benefits.

However, the court ruled that the bill contravened Portugal’s constitution, partly because it failed to uphold workers’ rights to employment stability. Joaquim Sousa Ribeiro, president of the court, said the government had “aggressively” changed the rules for retraining workers without providing precise motives.

The court delivered its unanimous decision two weeks before deadline. Six of its 13 judges were on holiday and did not participate in the ruling.

The bill had been sent to the court for vetting by President Aníbal Cavaco Silva.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE