Portugal's Constitutional Court Deals Budget Blow with Pension Ruling

Portugal's Constitutional Court has rejected a government bid to cut public sector pensions, which could have created savings of €380m for the embattled country.

The move is a blow to Portugal's proposed spending cuts ahead of its planned exit from its €78bn ($106bn, £65bn) bailout in the middle of next year.

It is now less likely that the embattled country will return to financing itself normally in the bond markets, which it stopped doing in 2011 when its debt crisis first hit.

The court ruled the government's proposal was "unconstitutional as this violates the principle of trust", arguing that pensioners' savings could not be taken from them.

The decision means another set of measures to cut public sector workers' salaries by up to 12% a month as soon as next year could also be challenged in the same court.

The country's Finance Minister Maria Luis Albuquerque previously said the government plans to make spending cuts worth €3.18bn out of a total budget consolidation effort of €3.9bn in 2014.

Portugal plans to issue €10.5bn in government bonds next year to help meet bond redemptions of €13.5bn and net financing needs of €11.6bn.