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Published: Tuesday March 18, 2014 MYT 8:40:03 AM
Updated: Tuesday March 18, 2014 MYT 8:41:34 AM

Portugal opposition rejects budget pact with government

LISBON (Reuters) - Portugal's opposition Socialists rejected on Monday an agreement with the government on a long-term plan to reduce the budget deficit after the country exits its international bailout later this year.

The rejection came after Socialist leader Antonio Jose Seguro met with Prime Minister Pedro Passos Coelho to discuss a government proposal to establish a long-term political agreement on budget consolidation.

Such an agreement could have impressed investors and shown that Portugal can stand on its own two feet after the bailout comes to a close in May and that budget consolidation would not be derailed by next year's elections.

But Seguro said after the meeting that the difference between the government and the Socialists cannot be bridged.

"There is an irremediable difference between the Socialists and the government on budget strategy," Seguro told journalists after the meeting. "That is what was under discussion in this meeting. That is the summary of the meeting."

He said there are different approaches to obtaining budget balance.

After Lisbon exits its bailout by the European Union and the IMF, its finances will still be bound by deficit reduction targets set by the 2012 European Union fiscal stability treaty.

The centre-left Socialists have supported the European fiscal stability treaty but say budget consolidation should be based on growth and not the spending cuts defended by the government.

An agreement between the government and the Socialists could have eased some economists' fears that Portugal might need a precautionary credit from creditors after the bailout.

Seguro said it was the government's obligation to ensure Portugal returns to "the debt markets without the necessity of any kind of help" after the bailout ends.

Portuguese yields are trading near four-year lows as confidence rises that the country can exit the bailout smoothly.

(Reporting by Sergio Goncalves and Axel Bugge; Editing by Eric Walsh)

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