Portugal has become the latest euro zone country to announce austerity measures to rein in a ballooning budget deficit.
Portugal announced plans to cut its deficit to 2.8% of gross domestic product in 2013 from 8.3% this year by trimming spending on civil servants and public investment, and raising taxes on high incomes and stock market gains.
The programme is seen as the key to convincing markets that Portugal will tackle its high deficit and debt after coming under scrutiny by investors fearing it may be next in line to have Greek-style fiscal problems.
Under the plan, Portugal's public debt would peak at 90.1% of GDP in 2012 and fall thereafter. Greece's debt is set to reach 125% of GDP this year.
‘This is a bet on reducing the weight of the state in the economy and the weight of public spending,’ Portuguese Finance Minister Fernandio Teixeira dos Santos said.
Borrowing costs of the peripheral euro zone countries and the price of insuring their debt against default both fell after French President Nicolas Sarkozy gave the clearest indication so far that firm plans to help Greece were ready if needed.
