Thu, Jul 04, 2013 - Page 7 News List

Portuguese political crisis deepens as ministers resign, bond yields soar

Reuters, LISBON

Two more Portuguese ministers from the junior ruling coalition party were ready to resign yesterday, local media said, deepening turmoil that could trigger a snap election and derail Lisbon’s exit from an EU and IMF bailout.

Multiple newspaper radio and television reports said Portuguese Agriculture Minister Assuncao Cristas and Portuguese Social Security Minister Pedro Mota Soares would follow their CDS-PP party leader Paulo Portas, who tendered his resignation on Tuesday.

Party officials were not available to comment as the party’s executive commission was in a meeting.

Portuguese Prime Minister Pedro Passos Coelho told the nation on Tuesday he did not accept Portas’ resignation, and that he would continue to head the government to ensure political stability and work to overcome the stalemate.

Many commentators called the situation “absurd.”

With no solution imminent, Portugal’s bond and stock prices slumped further. The returns investors demand to hold 10-year bonds surged to above 8.1 percent for the first time since November last year and the PSI20 stock index slumped 6 percent, led by sharp losses of more than 10 percent in banking shares.

Coelho’s decision to reject his foreign minister’s resignation puts the responsibility for the government’s survival squarely on the shoulders of Portas, who now has to decide whether to stay in his post or pull his rightist CDS-PP party out of the coalition. Without the CDS-PP, the center-right government would lose its majority.

“One thing is certain, the prime minister is going to do everything to stay on, giving all possible concessions to Portas,” political scientist Antonio Costa Pinto said. “Failing that, though, we can hardly avoid an early election.”

Portugal is subject to strict budget conditions imposed by an EU and IMF bailout. It had been hoping to return to normal debt markets, but rows over continued austerity have now thrown that into question.

“We see early elections as the most likely outcome at this stage, even if we cannot fully rule out support from some CDS lawmakers and the continuation of the government,” Barclays economist Antonio Garcia Pascual said in a note. “We consider that the decision of the CDS leader to step down from the government can be explained to a large extent by the fall in popular support for the government coalition.”

A day before Portas tendered his resignation, Portuguese Finance Minister Vitor Gaspar, the architect of spending cuts and tax increases required by lenders as a condition of their support, stepped down, citing an erosion of support for the bailout.

Costa Pinto also said counting on occasional support from CDS-PP in parliament would allow the government to muddle through, but not for long.

Although Portuguese President Anibal Cavaco Silva is expected to promote a grand coalition government, analysts do not expect the largest opposition party, the moderate center-left Socialists who lead in opinion polls, to play ball.

Still, while opinion polls indicate the Socialists would win a snap election, they would fall short of a majority.

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