Portugal's government said on Saturday the constitutional court's rejection of key austerity measures from this year's budget creates "serious difficulties" in meeting international commitments under a bailout.
Following an extraordinary cabinet meeting after the court ruling late on Friday, State Secretary for Cabinet Affairs Luis Marques Guedes told reporters the decision "jeopardizes the country's hard-earned credibility" gained with its European partners and lenders.
Marques Guedes said Prime Minister Pedro Passos Coelho will meet President Anibal Cavaco Silva to discuss the "complex situation" after the court's ruling, which the government has said it would accept.
The constitutional court on Friday rejected four out of nine contested austerity measures in this year's budget in a ruling that deals a heavy blow to government finances. Still, analysts say the rejection should not provoke a governability crisis and expect replacement measures to be found with the European Union and International Monetary Fund.
The government would not provide estimates for how much the rejected measures are worth, but analysts have said at least around 900 million euros ($1.17 billion) in net revenues and savings are compromised. Some local media have put the figure as high as 1.3 billion euros.
The entire package of austerity measures in the 2013 budget is worth about 5 billion euros and includes the largest tax hikes in living memory, which were mostly upheld.
The court's decision came before an informal meeting of euro zone finance ministers next week in Dublin where they were expected to approve extensions of loan maturities for Portugal and Ireland.
"Portugal has been fighting to reach, at this meeting, agreement with European partners for the extension of its bailout loan maturities, which is essential for our successful exit from the bailout program in 2014," Marques Guedes said.
Lisbon has to cut the budget deficit to 5.5 percent of GDP this year from 6.4 percent in 2012, when it missed the goal but was still lauded by its EU and IMF lenders for its austerity efforts. The lenders have already eased Portugal's deficit goals twice since the rescue package was agreed, recognizing the country's consolidation efforts.
Portugal returned to the bond market for the first time since its 2011 EU/IMF bailout in January, selling debt due in 2017, and has been preparing a longer-maturity bond issue for the coming months.