Portugal announces fresh cuts and reforms to reduce deficit By Julia Kollewe

 EU economic and monetary affairs commissioner Olli Rehn backs Lisbon's new plan, calling it a 'clear and important' message that Europe is tackling its problems.

                                                                                               Photograph: Georges Gobet/AFP/Getty Images

Austrian finance minister Josef Pröll (left) with chancellor George Osborne (right). Pröll says Portugal must decide soon whether it needs a bailout.

 Portugal has announced a fresh round of spending cuts and public sector reforms in an attempt to reduce its deficit and avoid being forced into taking a bailout. 

 The new austerity measures include slashing spending on health services and social welfare payments, and delaying infrastructure projects. Portugal will also impose a new levy on those with larger pensions, and cut the compensation payments to workers who are laid off.

 The finance ministry said the cutbacks will trim Portugal's 2011 deficit by another 0.8% of GDP. It is targeting a deficit of 4.8% of GDP this year, down from around 7% in 2010.

 The measures were announced as eurozone leaders gathered in Brussels to discuss the ongoing debt crisis in the region, with Portugal under heavy pressure to request an international aid package.

 Olli Rehn, the EU economic and monetary affairs commissioner, backed Lisbon's new plan, calling it a "clear and important" message that Europe was tackling its problems.

 Earlier, Austria's finance minister had urged Portugal to decide soon whether to seek assistance from the eurozone's crisis-fighting fund.

 In an interview with the Financial Times, Josef Pröll, who heads up the conservative Austrian People's party, said: "The European reality is that we cannot force a country to go to the EFSF [European Financial Stability Facility] – to take direct support."

 He noted that the Portuguese government refinanced €1.5bn (£1.3bn) of debt without any major problems in January, albeit with high borrowing costs. "There's obviously no immediate pressure for them. But my signal to Portugal is to look at Greece and Ireland: don't be too late. Make your decision soon: yes or no. But we cannot force them."

 He added: "If the concrete numbers in Portugal say that they cannot refinance the country in the next years without help, then they should very soon take advantage of the [EFSF] umbrella. But, as I said, we cannot force them, that's the reality."

 Like Ireland last year, Portugal has insisted that it does not need international assistance and can continue to fund itself in the market.

 Portugal succeeded in selling €1bn of government bonds this week, but the yield on its debt is trading at record levels.

 Leaders of the 17 members of the eurozone will discuss proposals for a new stabilisation package to address the ongoing debt crisis. Issues on the table include tougher rules on public debt levels and higher pension ages. However, they are not expected to agree any firm proposals.

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