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Eurozone stocks rise after Portuguese budget announcement

Article By: ,  Financial Analyst
October 16, 2012 10:15 AM

The major eurozone stock indices have opened today's (October 16th) morning of trading higher after the Portuguese government announced its new budget.

Late last night, finance minister Vitor Gaspar of the debt-addled Iberian nation's centre-right ruling party announced a set of sweeping tax hikes and spending cuts for 2013.

Indeed, next year looks to be the third 12-month period of recession in a row for Portugal, which is already struggling to meet conditions set out by international lenders when it was granted its €78 billion (£62.2 billion) bailout in 2011.

Mr Gaspar noted that if Portugal fails to continue to see out its austerity, the consequences could be disastrous.

Nevertheless, the cuts and tax rises have not been welcomed by the Portuguese electorate, with 2,000 protestors gathering outside the parliamentary buildings in the capital city of Lisbon last night chanting for the government to resign.

One of the measures being implemented in the 2013 budget is the increase of income tax from 9.8 per cent this year to 13.2 per cent next year.

Mr Gaspar insisted this budget is the only way the country can meet its bailout targets and stated there was "no room for manoeuvre on the subject".

In addition to this tax hike, the finance minister announced spending cuts of €2.7 billion in 2013, which will include making two per cent of the nation's 600,000 public sector workers redundant.

Mr Gaspar explained this budget would help Portugal narrow its gaping public deficit to 4.5 per cent next year. It has to reduce this still further to the European Union target of three per cent.

Portugal is the latest country to experience civil unrest as a result of its government's austerity measures, with Spain and Greece dealing with protests last month.

A general strike is planned for November 14th over the Portuguese government's decision.

At close of play last night, all the major eurozone stock indices were up, with the German Dax finishing higher by 0.4 per cent to 7261.2 points, the French Cac 40 climbing 0.9 per cent to 3420.2 points and the Madrid Ibex gaining 0.3 per cent to 7678.5 points.

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