Portugal's last bailout loan suspended

BRUSSELS - The conclusion of Portugal's €78 billion EU bailout programme has hit a last minute snag after the EU and the International Monetary Fund (IMF) suspended the country's final €2.6 billion loan.

The move follows a ruling by the Portuguese supreme court last Friday (30 May), which rejected as unconstitutional the government's plans to impose public sector pay cuts worth between 2 and 12 percent, as well as cuts to pensions and welfare benefits.

The decision leaves the Portuguese government having to explain to its creditors how it will plug a €700 million revenue gap this year before the funds are released to Lisbon.

Although Portugal formally exited its three-year bailout programme at the start of May without requesting any further loans, Prime Minister Pedro Coelho i said on Tuesday that the court ruling breached the conditions agreed with the EU and IMF.

"As there was a change in these conditions, now evidently this payment can only take place when this situation is overcome," said Coelho.

He added it was “not possible for the Portuguese state to commit, either to the European Union or the IMF, to its deficit goal of 2.5 per cent in 2015 without being able to respond to these questions.”

For its part, the European Commission has urged the Portuguese government to introduce "replacement measures of equivalent size ... as soon as possible" in its country recommendations report on Monday.

Portugal's supreme court has been a thorn in the side of Coelho's centre-right government throughout the programme, rejecting a series of planned austerity measures.

It has two rulings on other planned measures still pending.