The government on Monday presented a draft long-term plan to slash the budget deficit to below the EU limit of 3 percent of gross domestic product (GDP) by 2013 as it aims to convince markets it can avoid a Greek-style fiscal crisis.
Investors believe Portugal is one of the most vulnerable economies in the euro zone, although its deficit and debt are lower than Greece's.
Manuel Carvalho da Silva, leader of the country's largest union CGTP, criticized the government's plan, which includes caps on public investment and civil servants' wages, as "absolutely imbalanced" and offering no advantages to workers.
"These will be times that call for mobilization of Portuguese workers," he told reporters after meeting Prime Minister Jose Socrates and Finance Minister Fernando Teixeira dos Santos to discuss the programme.
Joao Proenca, head of the second-largest union UGT, said it was evident that there would be social protests if the government went ahead with its plan to cap public sector wages.
But the finance mininster was defiant. Asked about the threat of strikes, he said: "We will confront this reality if it materializes. But this will not temper our determination and we'll do what has to be done for the good of the country." "If we don't successfully carry out this correction in public finances the scenario will be much worse. It would mean a blockade on financing of the Portuguese economy, enormous difficulties for companies, compromising growth and jobs." Teixeira dos Santos said the unions should understand that the austerity plan was "a solid base for the country's future.”
"If, on the contrary, they think that everything is fine and nothing should be done, then I believe they are pointing to a future that is in no way radiant," the minister said.
The unions, which staged a one-day civil servants' strike last Thursday, were already up in arms over this year's wage freeze in the public sector. The long-term plan allows no salary raises above inflation, which they argue will cut real incomes.
Analysts generally do not expect massive disruptive strikes, but warn protests could further undermine the minority government's popularity.
The government wants to cut the deficit to 2.8 percent of GDP in 2013 from 8.3 percent this year by trimming spending on civil servants and public investment, and raising taxes on high incomes and stock market gains.
Analysts say the program is hardly ambitious, but feasible if the economy grows as the government expects it to.
The premium investors demand to hold Portugal's 10-year bonds over German bunds rose on Tuesday about five basis points to 118 bps after Fitch Ratings said it had no plans to change its negative outlook on the country's double-A credit rating.
Still, the spread has come down substantially from a peak of close to 170 bps in early February at the height of the market panic over Greece's woes.
