The IMF has told Portugal that the draconian austerity budget it has passed for 2013 will not be enough and has asked for more austerity. Portugal needs to make up a 4 billion euro gap and to do so the IMF wants to see cuts to government salaries, cuts to the government pension plan and a reduction in headcount.
Just as a recap here, let’s remember that the fiscal cliff in the US is nothing compared to the severity of tax increases and budget cuts the Portuguese government is enacting. In fact, the tax increases are the highest in Portuguese history.These measures have been very unpopular and has taken a toll on support for the government. Nonetheless, the government feels it is necessary if it wants to be in a situation similar to Ireland, with capital market access, looking to exit the Troika program and join Spain and Italy as targets for ECB monetisation.
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