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Portugal wavers on debt limit in Constitution

By Barry Hatton

Associated Press

Published: Friday, Dec. 16 2011 7:18 a.m. MST

LISBON, Portugal — Portugal's main opposition party held out Friday against the government's plan to include a budget deficit limit in the Constitution — a step that is part of a broad European agreement to tackle the continent's debt crisis.

Portugal and most other European union countries agreed at a summit last week to amend their national constitutions, limiting deficits to 0.5 percent of economic output in regular economic times.

The measure, aimed at preventing government overspending, was part of a deal seen as vital to help end a financial crisis threatening European and global growth.

Portugal's center-right coalition government needs the support of the center-left Socialist Party to ensure the two-thirds parliamentary majority required for a constitutional amendment.

But Socialist leader Antonio Jose Seguro, whose party has endorsed austerity measures and reforms linked to a €78-billion ($102-billion) international bailout earlier this year, refused to commit to constitutional changes.

He said during a parliamentary debate that Portugal should focus on "real solutions that address our problems." He did not elaborate though he has previously said a stricter budget law is enough to cap spending.

In an agitated parliamentary session, Prime Minister Pedro Passos Coelho said he had understood in private talks with the Socialists that they were open to negotiations on the proposal. Passos Coelho said if he had known the Socialists would dig their feet in, he would not have signed up to the EU agreement.

"Just as debts are meant to be paid, agreements are meant to be kept," Passos Coelho told lawmakers. "We can't keep going from summit to summit making promises that aren't kept," he said.

Lavish spending by previous Portuguese governments buried the country under a debt pile that spooked investors, forcing the country to ask for financial rescue. Portugal's deficit — limited to 3 percent of gross domestic product under eurozone rules — was 9.8 percent in 2010. Debt is expected to surpass 100 percent of GDP this year and peak at 106 percent in 2013 before retreating.

"We want to limit the ability of any government in office to compromise future generations," Passos Coelho said.

He told lawmakers his government will abide by the bailout deal despite a record 12.9 percent jobless rate and a double-dip recession that is forecast to deepen next year.

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