PORTUGAL ANNOUNCED additional spending cuts and reforms yesterday to cut its deficit by an extra 0.8 per cent of gross domestic product this year in an attempt to stave off intense pressure to take a bailout.

Finance minister Fernando Teixeira dos Santos spelled out a raft of measures including spending cuts on health services, social welfare and delaying infrastructure projects, which he said would guarantee the government will reach its target of a 4.6 percent fiscal gap this year.

“As an additional precaution for 2011, the consolidation measures will be strengthened, allowing us to have an additional effect of 0.8 per cent (of GDP), he told reporters in Lisbon, shortly before a key euro zone summit designed to help resolve the debt crisis.

He added that the measures ensured there will be no doubts about the debt-laden country meeting its 2011 deficit target.

Mr Teixeira dos Santos said Lisbon would seek to deepen structural reforms, particularly in the labour market, where it plans to cut layoff compensations to 10 days from 30 days and set a maximum compensation payment limit worth 12 months’ pay.

“The ongoing consolidation effort, now complemented with additional measures for 2011, has to be followed by measures in the following years given the demanding targets set,” he said.

Markets were little moved by the announcement. “I think this is Portugal still desperately trying to prove that it has the political will to push through these painful measures,” said Colin Ellis, chief economist at BVCA in London.

“Ultimately however, the interest rates they’re paying in the market are unsustainable, theres still a good chance they will need some support at some stage.”

Bond market pressure on Portugal to become the third euro zone state to seek an EU/IMF rescue after Greece and Ireland has intensified this week with 10-year bond yields at euro lifetime highs above 7.5 per cent, a level Lisbon says is unsustainable. – (Reuters)