Portugal Considers Paying Workers in T-Bills to Circumvent Court Ruling that Austerity Measures are Unconstitutional

Last week, ahead of a ruling by the Portuguese Constitutional Court on whether or not the austerity measures it approved were legal, Portugal's PSI stock market took a dive.

PSI Stock Index



On March 25 the index was at 6023. It closed at 5637 on April 5 a decline of 6.4%

Court Rejects Budget

On April 5, Portugal constitutional court rejects budget articles

Portugal's Constitutional Court has ruled several key articles of the 2013 state budget unconstitutional.

It rejected four out of nine contested austerity measures from the budget.

It will deprive the state of some 1.5bn euros (£1.3bn) in savings the government had said were necessary to meet the terms of a eurozone bailout.

The court rejected a measure to scrap summer holiday bonuses for public sector workers and pensioners, as well as cuts to unemployment and sickness benefits.

Prime Minister Pedro Passos Coelho did not react to the decision immediately but called an extraordinary cabinet meeting for Saturday.

For most Portuguese workers, the annual tax rises are equivalent to more than a month's wages. The standard income tax rate is rising from 24.5% to 28.5%.

The savings are Portugal's toughest in living memory, aimed at meeting the terms of a 78bn-euro (£64bn) bailout.

Portugal Considers Paying Workers in T-Bills

One might think the Portuguese government would have gotten the message or at least the spirit of the message but one would be wrong.

The Wall Street Journal reports Portugal Mulls Paying Workers in T-Bills as a means to circumvent the court ruling.

The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts, a person familiar with the situation said Sunday.

The Portuguese government warned Saturday that the court's decision will put into question the country's ability to fulfill its €78 billion ($101 billion) international bailout program.

Specifically, the court rejected plans to cut one of the 14 paychecks that public workers usually get each year and to slash 6.4% from pensions for retirees.

By paying one month of salary in T-bills to public workers and pensioners, the government would save an estimated €1.1 billion in expenses, narrowing the budget gap significantly

Plan "C" Coming Up

The idea that paying workers in T-Bills (debt) can fulfill austerity agreements is of course preposterous. I highly doubt Brussels will go along with this scheme, and if so Portugal will soon be back at the drawing board. Plan "C" is coming up.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com