Ministers pledge to renegotiate austerity measures with unions and employers amid growing popular backlash
Portugal's government is preparing a U-turn on an announced rise in social security contributions that would have instantly increased workers' payments by nearly two-thirds amid a growing popular revolt against austerity measures.
Hundreds of thousands of people took to town squares across the country a week ago to protest at the announced rise, which raised contributions from 11 to 18% of salaries, sparking a pledge by the government this weekend to reconsider the unpopular move.
The centre-right prime minister, Pedro Passos Coelho, had solemnly announced the measure to shocked Portuguese workers, who would have lost the equivalent of almost a month's salary, during a televised speech a fortnight ago.
"The financial emergency that the country sank into in 2011 is still not over," he said at the time. "We have begun to attack the problems we face but have not yet dominated them."
But an eight-hour meeting of the presidential state council was besieged by protesters in the small hours of Saturday morning and ended with a government pledge to renegotiate deficit-cutting measures with trade unions and employers.
"The council was informed of the government's readiness to study, within the framework of the social bargaining process, alternatives to changes in the social security rate," a statement said after the council meeting. The council is presided over by the president, Anibal Cavaco Silva, and Passos Coelho is one of its members.
Half a dozen protesters who were arrested outside the presidential palace on Friday night are due to appear in court on Monday. Demonstrators had demanded the government's resignation and chanted: "Thieves, thieves!"
The mounting anger in Portugal about the austerity imposed by the bailout came as France appeared ready to offer concessions to Greece, the first country to need help from eurozone partners. The French prime minister, Jean-Marc Ayrault, told the news website Mediapart: "The answer must not be a Greek exit from the eurozone.
"We can already offer it more time … on the condition that Greece is sincere in its commitment to reform, especially fiscal reform," he said.
Aid to Greece from the IMF and European bodies is reliant on the cash-strapped country meeting tough austerity measures. Last week there were reports – later denied – that the latest inspection by the troika could be delayed until after the US presidential elections in November.
The Portugese rethink marked a turning point in the country's patience with austerity, which was imposed on it after it asked for a €78bn bailout from the troika of the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) last year.
Portuguese voters appeared to accept austerity measures as inevitable at the time and in June 2011 they elected a coalition of Passos Coelho's centre-right Social Democratic party and more right-wing People's party to carry them through.
The country is now in its worst recession since the 1970s and the economy is expected to shrink by more than 3% this year. Recession is expected to continue in 2013, further reducing Portugal's chances of shaking off troika control.
Passos Coelho had his knuckles rapped by the state council, which called for "political and social dialogue to seek consensus" rather than the unilateral imposition of measures in its Saturday morning statement.
The council also asked the government, which had accompanied the rise in individual social security payments with a cut in those made by employers, to share the burden of austerity more evenly. "Any solutions should … guarantee an equitable and just distribution of sacrifices as well as protecting those families with the lowest income," it said.
Both the council and the government recognised, nevertheless, that Portugal must meet its obligations to the troika – which means finding another way to raise €6bn a year.
Earlier this month the troika agreed to relax Portugal's deficit targets for the next two years but the government believes fresh measures are still needed to meet the new targets.
Portugal's trade unions will bring their own deficit-cutting proposals to the table. They include a tax on financial transactions, higher business taxes, a harder line on tax fraud and higher taxes on dividend payments to large shareholders. A 0.25% tax on financial transactions would raise €2bn, according to the General Workers Confederation of Portugal.
Passos Coelho's government will propose a new cut in holiday subsidies for workers, the Expresso weekend newspaper reported
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