Portuguese trade unions hold major strike over austerity; public services hardest hit

LISBON, Portugal — A national strike against austerity measures by Portuguese labor unions on Thursday shut down many public services, but the government showed no signs of backing down from the pay cuts, tax hikes and layoffs it insists will help restore the bailed-out country's financial health.

Most services operated by the national train company CP, the Lisbon subway and city bus companies — all of them state-run — were cancelled during the 24-hour walkout, forcing commuters to use their own vehicles and congesting traffic in the capital Lisbon and Porto, the second-largest city. Airport management company ANA reported that 37 flights were cancelled by early afternoon, 32 of them at Lisbon airport, and many delays.

The protest went to the heart of the current debate in Europe over whether to ditch debt-reducing austerity policies and adopt more growth measures to pull the group of 17 European Union countries that use the euro, including Portugal, out of recession.

Portuguese business leaders and opposition political parties have joined labor unions in appealing for a change in course, but the government said it won't budge from an austerity strategy it insists will pay off in the long term.

It is preparing a new raft of reforms to cut public spending that are expected to further reduce living standards and stoke a record level of unemployment, even as Portugal weathers a forecast third straight year of recession.

"The country hasn't ground to a halt" Cabinet spokesman Luis Marques Guedes said of the strike after a meeting of government ministers. "The government believes that work is what the country needs to do."

The General Confederation of Portuguese Workers and the General Workers' Union, which together represent about 1 million workers in this country of 10.6 million people, want the center-right coalition government to ease off its spending cuts and take more steps to create jobs. Thursday's walkout was only their fourth joint protest in 25 years.

Portugal's European partners are keen for it to stick with its cost-cutting drive, which is viewed as vital if heavily-indebted eurozone countries are to put their three-year-old financial crisis behind them. Portugal's government debt stands at almost 124 percent of gross domestic product, the third-highest in the EU after Greece and Italy.

Also, the austerity program is a demand of foreign creditors — Portugal's EU partners and the International Monetary Fund — who lent it 78 billion euros ($102 billion) in a financial rescue two years ago. If Portugal doesn't stick with the planned cuts the creditors can stop disbursements of the bailout funds, leaving the country at risk of bankruptcy.

Nevertheless, the outlook for Portugal is grim. The jobless rate, currently at a record 17.8 percent, is forecast to hit 18.5 percent next year. The bailout creditors predicting a contraction of 2.3 percent this year after the Portuguese economy shrank 3.2 percent in 2012. The budget deficit stood at 6.4 percent of annual GDP in 2012 — higher than the 5 percent target for that year though much lower than the 10.1 percent recorded in 2010.

Already, the government has raised sales tax to 23 percent from 13 percent, while income tax hikes have costing many middle-class workers more than a month's pay. A European Commission report published Wednesday forecast further declines in household income this year and next.

Unions are also angered by the government's latest plans, which include increasing the working time of state employees to 40 hours a week from 35; increasing their monthly pension deductions while lowering their pension entitlements; and laying off some 50,000 government workers out of the total of about 583,000.