Portugal Constitutional Court rejects Fauxsterity Plan A, pushes Fauxsterity Plan B

The Portugese government, like just about every other deficit-crippled government in the Mediterranean, has responded to Brussels’ demands for belt-tightening with what I like to call big-government-on-the-cheap (or Fauxsterity), i.e., cut government salaries and bonuses, along with tax hikes.

Portugal’s highest court – the Constitutional Court – just shot that down today (New York Times), but that isn’t good news either:

The measures rejected by the court represented about 1.4 billion euros, or $1.8 billion — more than a fifth — of the 5 billion euro austerity package of spending cuts and tax increases. Among its rulings, the court drew a line on cuts aimed specifically at civil servants, who it said were being singled out for punishment and therefore discriminated against.

The decision has now called into question how the government can meet its budgetary goals in the near term and raised the broader issue of just how much austerity will be tolerated, not only by disgruntled citizens but also by justices who often act as the guardians of the Continent’s cherished social welfare system.

“The ruling could be interpreted as saying that all public spending cuts that affect civil servants are unconstitutional,” Fitch, the credit rating agency, wrote on Monday. “If that interpretation is correct, the ruling represents a setback to future fiscal adjustment efforts in Portugal.”

It added, “This is a greater concern than its immediate impact.”

…Luis Cabral, a Portuguese economist and professor at New York University, said the court still went beyond a legal ruling and delivered what amounted to “a significant political statement,” which means that “effectively, government expenditure cannot be reduced.” In terms of Portugal’s budgetary commitments, Mr. Cabral added, “when you put it all together, it’s clear that things do not add up.”

In other words, the court is demanding Lisbon raise more taxes, period, the very thing that has failed… just about every other deficit-crippled government in the Mediterranean.

This will not end well.

Cross-posted to the right-wing liberal