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As Portugal exits bailout, PM promises more reforms

Portugal's Prime Minster has told CNBC that his government plans to boost reforms – despite the country's formal exit from its international bailout this weekend.

Speaking to CNBC in Lisbon, Pedro Passos Coelho said it had been a tough three years for Portugal since it accepted its 78 billion euro ($107 billion) bailout, but insisted there was no going back.

"Don't forget these three years were very, very tough, no-one wants to spoil the sacrifices we have made. No-one wants to go back to an unsustainable path in Portuguese economy," he said.

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Portugal was among the euro zone countries hardest hit by the global financial crash of 2008. It was forced to request an international bailout from the European Union (EU) and International Monetary Fund (IMF) in 2011, and has since undergone tough spending cuts and reforms.

Pedestrians cross tram tracks on a shopping street in central Lisbon, Portugal
Mario Proenca I Bloomberg via Getty Images
Pedestrians cross tram tracks on a shopping street in central Lisbon, Portugal

After sticking to the bailout plan – meeting targets to slash its budget deficit - the country will exit its bailout program on Saturday.

"We have worked a lot to achieve a result like this. Three years of tough measures, a lot of sacrifices from the Portuguese people," Passos Coelho said.

"But at the end we have been able to reconstruct some trust in the financial markets, trust in the people, and finally we are on the path to come back to growth, to growth."

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The move, which means Portugal will no longer have to answer to its bailout lenders -- the International Monetary Fund and fellow euro zone countries -- has led to some concerns that the country could relax its efforts to turn around it economy, especially given a general election in a year's time.

But Passos Coelho, who is leader of Portugal's Social Democratic Party, insisted there was no risk of this given that the Portuguese public understood that reforms needed to continue.

"We will maintain the fiscal responsibility, the necessary support to maintain financial stability and we will boost the reform momentum," he said.

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Markets have welcomed Portugal's success. Since hitting a peak of around 17.3 percent in early 2012, the yield on Portugal's benchmark 10-year government bond is now around 3.72 percent.

But it's not going to be an easy ride for Portugal, with gross domestic product (GDP) data from Thursday revealing that its economy contracted in the first quarter of 2014. Its benchmark index, the PSI 20, fell 2.7 percent on the news.

Despite Thursday's stumble, Passos Coelho said he did not think markets were underestimating the challenges faced by Portugal.

"The markets know very well the financial situation of Portugal, of Spain, of Italy and so-on," he said. "No one doubts Europe's capacity to overcome the crisis."

No ECB QE?

Passos Coelho also commented on nascent signs that the European Central Bank (ECB) could be considering buying bonds and other assets in an effort to stump up the euro zone's economy.

An asset-purchase, or quantitative-easing (QE), program would be something of a drastic change in policy - and is not something supported by Passos Coelho.

"No one in the ECB can tell we ever conceived a situation where a policy like this could be adopted, but it's not the mission of the ECB to improve the economic recovery," he said.

Instead, Passos Coelho said he would prefer the central bank to play a less active role in Europe's economy. "It's important that the European economy can recover by its own possibilities," he said.

His comments come after the ECB opted to keep monetary policy unchanged last week. However hints by Mario Draghi, the president of the central bank, have led many to expect some stimulus measures – although perhaps nothing as drastic as QE – to be unveiled at the ECB's June meeting.

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