Antonio Costa Pinto, a Lisbon University political scientist, said the central problem is that the government is trying to introduce retroactive reforms in the public administration, which break contractual promises.
"The government will come up with financial alternatives" to meet its spending targets, Costa Pinto said. "But the reforms will take longer" because they likely will have to apply only to new hires, he said.
Portugal is in a race against time. If it doesn't comply with the bailout agreement, the lenders would withhold disbursements of the rescue money. The next assessment by the lenders' inspectors begins next week, and their consent is needed for Lisbon to get its next check, worth 2.8 billion euros.
In place of the money-saving reforms the Constitutional Court rejected, the government could hike taxes again. But Passos Coelho has conceded such a move could further choke the economy. Also, with municipal elections due Sept. 29, the government is reluctant to make itself more unpopular.
Pressure is on the government lawyers to come up, speedily, with legal arguments that circumvent the judges' ruling.
More broadly, changes to the Constitution may prove necessary. But that requires a two-thirds majority of votes in Parliament, which the government doesn't have.
The government's discomfort is unlikely to end any time soon. Opposition parties and labor groups say they'll ask the Constitutional Court to rule on the lawfulness of other imminent measures. They include an increase in civil servants' working hours to 40 hours a week from 35, and an average 10 percent cut in the pensions of most government workers.
Passos Coelho has raised the alarm: any backsliding on promised reforms could leave Portugal needing a second bailout, under terms harsher than the first rescue.
He slammed the Constitutional Court judges for being "more protective of standing entitlements than of future generations."
"Has anyone thought to ask the more than 900,000 people who have no job what the constitution has done for them?," he added.