Portugal wins reprieve ahead of German court decision

Bailed out Portugal won a precious reprieve from its creditors on Tuesday, a day before a highly anticipated German court decision that could put a painful end to a summertime lull in the eurozone debt crisis. The EU and IMF have agreed to relax Portugal's deficit targets for 2012 and 2013, Finance Minister Vitor Gaspar said, rewarding the Portuguese for pushing through reforms and drawing a marked contrast with the little patience shown Greece. Meanwhile Spain, the eurozone's fourth biggest economy and a crisis flashpoint, still refused to say whether it would go ahead and request a full EU bailout, as pressure from the streets in the Catalonia region kept the government on tenterhooks. But to Spain, as with all players in the more than two year old debt crisis, the main decision on Wednesday by the German Constitutional Court is seen as a crucial moment for the eurozone. On the eve of the main ruling, the Karlsruhe-based court already rejected a last-minute legal challenge by a eurosceptic politician and said it will proceed as planned with its decision on whether German President Joachim Gauck can sign into law the European Stability Mechanism (ESM) and the European fiscal pact. In addition to that ruling, on Wednesday the Dutch go to the polls with an anti-austerity party set to score big gains and EU leaders are to unveil plans for the first step in creating a eurozone banking union. A decision by the court to hold up Germany's participation in the 500-billion-euro ($640 billion) ESM bailout fund and the pact obliging countries to cut their deficits would negate the strategy elaborated by European leaders to overcome the debt crisis. It could lead to a new spike in market tensions after a calm restored by the European Central Bank's decision last week to launch a new bond-buying programme. The last-minute complaint to Germany's Constitutional Court had argued that the ECB's new bond-buying programme was an illegal monetarisation of debts. It had sought a ruling on that issue before a decision whether the ESM and fiscal pact are an illegal transfer of budgetary sovereignty under Germany's Basic Law. In Spain, a thousand buses from across the northeastern Spanish region of Catalonia carried supporters to Barcelona for the region's national day, or Diada, with a slogan: "Catalonia, a new European state." Fiercely proud of their distinct language and culture, Catalans increasingly feel they are getting a raw deal from Madrid. Last month, the region reached out for a 5.0-billion-euro central government rescue so as to make repayments on its 40-billion-euro debt, equal to a fifth of its total output. The central government in Madrid, which is trying to squeeze the country's overall deficit back into EU limits, has demanded regions make huge cuts to public services. Catalonia, which accounts for one-fifth of the Spanish economy, says it pays the central government far more in taxes than it receives in return -- some seven to eight billion euros a year -- and wants the power to raise and spend its own taxes like the neighbouring Basque Country. Meanwhile Finnish Prime Minister Jyrki Katainen backed Spain in its "unfair" financial crisis and said he would not pressure it to seek a full sovereign bailout. With expectations high that Spain will seek a full-blown bailout from Europe, Spanish Prime Minister Rajoy said on Monday that he would not accept any economic bailout that dictates spending cuts or touches old-age pensions. Katainen, a strict defender of fiscal discipline who was a tough player in July negotiations for a eurozone rescue loan to Spain's banking sector, said he would not dictate to Rajoy what areas to make cuts in. Meanwhile Greece struggled to find 11.5 billion euros in spending cuts over the next two years in order to unlock 31.5 billion euros of bailout loans it needs to stay afloat. German Finance Minister Wolfgang Schaeuble hailed "substantial progress" made by Greece in cutting its debt mountain but urged Athens to stick to its promises if it wanted to receive much-needed fresh aid, in a speech to German lawmakers.