Traders monitor the screens at a bank in Lisbon yesterday. Portugal’s benchmark PSI20 equity index tumbled 6.4 percent in massive volumes.
LISBON/BERLIN: Portugal’s president yesterday summoned the main political parties for crisis talks under pressure from investors who fear a snap election could derail Lisbon’s efforts to emerge from its international bailout.
President Anibal Cavaco Silva’s office said he met the leader of the main opposition Socialists yesterday, then the premier today and other parties after that. Under the constitution, he has the power to dissolve parliament and can act to mediate in political crises.
But with no solution imminent, Portugal’s bond and stock prices tumbled. The crisis hit shortly before inspectors from Lisbon’s creditors — the European Union and International Monetary Fund — arrive to start their next review of the economy on July 15. That might well now be delayed.
Media reports said two more ministers from the junior ruling coalition party were ready to quit and follow their CDS-PP party leader Paulo Portas who tendered his resignation as foreign minister on Tuesday. The party’s top brass spent all day locked in a meeting and were to deliver a statement later on.
Prime Minister Pedro Passos Coelho told journalists in Berlin his government will overcome the crisis created by the resignations of Portas and his finance minister this week, which could undermine its majority in parliament.
“I am confident that we will be able to surpass this difficulty,” Passos Coelho told journalists after a meeting of European leaders to discuss youth unemployment in Berlin.
“So far, despite all the problems the two parties in the coalition have managed to put national interests above their local differences and have shown the country the majority is working. It’s certainly not now that we’ll put that at risk.”
Passos Coelho has fought to keep his country on course to complete its ¤78bn ($102bn) bailout next year as scheduled, but the measures have pushed Portugal deeper into its worst economic crisis since the 1970s.
The returns investors demand to hold 10-year bonds surged to above 7.9 percent on Wednesday for the first time since November and the PSI 20 stock index closed 5.3 percent lower, led by sharp losses of over 10 percent in bank shares.
Finance Minister Vitor Gaspar, the architect of spending cuts and tax hikes required by lenders as a condition of their support, stepped down on Monday, citing an erosion in support for the bailout. Foreign Minister Portas resigned because he objected to the appointment of Treasury Secretary Maria Luis Albuquerque to replace Gaspar. He must now decide whether to pull his party out of the coalition, thereby robbing it of its majority.
European Commission President Jose Manuel Barroso, a former Portuguese premier, said Portugal risked damaging its hard-earned financial credibility after two years of closely following its bailout programme. “This delicate situation requires a great sense of responsibility from all political forces and leaders,” he said.
Passos Coelho told the nation late on Tuesday that he did not accept Portas’ resignation and would continue to ensure political stability. Many commentators called the situation “absurd”.
The president has the power to dissolve parliament and call new elections but he has indicated that if political parties want to unseat the government they would have to put a motion of no-confidence through parliament.
“One thing is certain, the prime minister is going to do everything to stay on, giving all possible concessions to Portas,” said political scientist Antonio Costa Pinto. “Failing that, however, we can hardly avoid an early election.”
Portugal is subject to strict budget conditions imposed by its bailout. It had been hoping to return to normal debt market funding but rows over continued austerity have now thrown this into doubt.
Reuters
