By Nick Mann | 8 April 2013

The European Commission has urged Portugal to ‘swiftly’ introduce fresh measures to meet the terms of its €78bn bailout after some austerity cuts in the 2013 budget were ruled unconstitutional.

In a statement issued last night, the commission warned that any departure from the bailout programme targets would ‘neutralise’ progress made in restoring investor confidence in Portugal, and ‘prolong’ the pain of adjustment.

Prime Minister Pedro Passos Coelho has already announced plans for more cuts in spending on health, education and social security. He outlined the measures yesterday after the constitutional court ruling on Friday.

The judges found that proposed cuts in holiday bonuses for civil servants and pensioners and reductions in sick pay and jobless benefit were all unconstitutional. Together, these measures would have reduced government spending by an estimated €1.3bn this year, according to media reports. Other planned changes, including a  tax surcharge on high pensions and cuts in overtime pay rates, were not judged unconstitutional.

The European Commission welcomed Coelho’s commitment to meeting the terms of the bailout, including its fiscal targets and timeline. It added: ‘Any departure from the programme's objectives, or their renegotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens, namely the growing investor confidence in Portugal, and prolong the difficulties from the adjustment.

‘The commission therefore trusts that the Portuguese government will swiftly identify the measures necessary to adapt the 2013 budget in a way that respects the revised fiscal target as requested by the Portuguese government and supported by the troika in the seventh review of the programme.’

Last month, the ‘troika’ of lenders, which includes the commission, European Central Bank and European Central Bank, gave Portugal more time to reduce its deficit below the 3% of gross domestic product set under European budget rules.

As well as offering Portugal the best way to return to growth and improve its employment situation, ‘continued and determined implementation’ of the adjustment programme were needed for Portugal to benefit from looser terms on paying back its bailout loans, the commission noted.

‘The commission will continue to work constructively with the Portuguese authorities within the parameters agreed to alleviate the social consequences of the crisis,’ it added.