Cutbacks in Portugal

The announcement yesterday came two days ahead of a bond issue in which Portugal will try to raise 750m.

Greece was able to tap bond markets last week after also announcing more deep cutbacks to shore up its finances.

The two countries' troubles have fuelled a Europe-wide debt crisis that has undermined the euro and led the European Union to consider setting up a new European monetary fund to help support the euro.

Portugal aims to raise 6 billion from privatisations, trim welfare benefits and slash other state expenditure in an effort to reduce the country's heavy debt load, Finance Minister Fernando Teixeira dos Santos said.

The measures are part of a four-year austerity plan devised to convince financial markets and other eurozone countries that Portugal has its finances in order.

The plan "rests, essentially, on a reduction in public spending", Mr Teixeira dos Santos said.

Portugal's budget deficit is projected to have hit a record 9.3 per cent of gross domestic product last year, prompting fears it could face similar problems to Greece where a budget crisis has brought violent demonstrations, rattled the European Union and undermined the 16-country euro currency.