Portuguese politicians voted in favor of a key European treaty on budget discipline Friday. The pact introduces increased controls on public finances in European Union (EU) countries, limiting their annual budget deficits.
The pact was approved by an overwhelming majority of parliamentarians; 204 in favor, and just 24 opposed with two abstentions.
Portugal is one of three countries that have been bailed out by their EU neighbors. However its economy continues to shrink and a second bailout may be necessary.
Fredrik Erixon, Director of the European Center for International Political Economy in Brussels, says Portugal will most likely need a new bailout in about 18 months and that, he says, has made ratifying the pact crucial.
“If Portugal will need a second bailout package it actually needs to sign this pact because if it doesn't it will not have access to the bailout mechanism,” he said.
Erixon says Portugal also wants to convince the financial markets that it will pursue its austerity drive. He says the pact is controversial and has many critics.
Erixon also says many in Europe are warning that the pact moves EU economies in the wrong direction - towards greater austerity and away from growth.
“In the short term it largely introduces greater austerity on countries like Portugal, Spain, Greece, Italy, etcetera and they claim that that sort of austerity is not what these countries need at this time; they need to have greater flexibilities to run larger deficits over a longer period of time in order to make the sort of adjustments they need to make to have a better economy in the future and an economy that is also growing,” he said.
Across Europe, governments have been introducing austerity measures that in many cases have been met with widespread public discontent.
In Italy Friday, the country’s three largest unions went on strike over pension reforms.
But, says Erixon, Europe is only at the beginning of the austerity drive. He says in coming years, austerity will get worse at a time when economies are likely to continue to decline.
“Pressures will be even stronger then on people," he added. "And I think that we are going to see much stronger reactions from citizens in quite many countries against this type of austerity policy.”
The Bank of Portugal predicts that its economy will contract by 3 percent this year.