Portugal's Constitutional Court on Thursday rejected a government bill that paved the way for public sector lay off, dealing a new blow to Lisbon's efforts to push through the reforms demanded by the terms of its EU/IMF bailout.
The bill would allow the government to place staff in retraining programs, on lower pay. After 18 months, the workers would be placed in different jobs or laid off. It is very similar to a plan currently underway in Greece to sack thousands of civil servants by the end of the year.
But in Portugal the law prohibits the layoff of government workers except under exceptional circumstances, such as gross misconduct.
The Lisbon-based court ruled that the new measure is unconstitutional because it violates guarantees of job security and the principle of trust between the employer and employee. A government job has long been prized in Portugal, as it usually provides a job for life and a better pension than in the private sector.
The ruling is the second time the court has thwarted the government's spending plans. Just over a year ago, it struck down a measure to take away the Christmas and vacation bonuses of public employees and pensioners. The court said the measure was unconstitutional because it discriminated against a section of society.
The government is aiming to reduce its budget deficit to 4 percent of gross domestic product next year, from 6.4 percent in 2012. That target is a demand of creditors who granted Portugal a 78 billion euro rescue in 2011 to help pay its debts. After this latest blow, Lisbon will have to find other ways to save the money this measure would or risk not receiving the next of its bailout cash tranches.
Analysts say that the rejection also sends an alarm signal to investors as more planned austerity measures could be thrown out, endangering bailout targets.
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