Political Mess in Portugal Threatens Eurozone

Portugal’s Finance Minister Vitor Gaspar, the architect of the country’s €78bn bailout plan, resigned on Monday. According to some press reports, Vitor Gaspar submitted his resignation as pressure mounts on the government to ease its austerity measures responsible of the skyrocketing unemployment and Portugal’s third year of recession. Mr Gaspar’s departure comes shortly before the next review of the country’s bailout by its creditors, the European Union and IMF, to start on July 15.


As a consequence, Former Treasury Secretary, Maria Luis de Albuquerque, was appointed Portugal’s Minister of Finance by Prime Minister Pedro Passos Coelho, the office of President Cavaco Silva announced Tuesday morning.


Yet, on Tuesday evening, Portugal’s ruling centre-right coalition has been left in disarray after Foreign Minister Paulo Portas, leader of one the two government parties, tendered his resignation less than 24 hours after Vítor Gaspar quit his post. State news agency Lusa reported that Portas has sent a letter to the PM saying he disagreed with Gaspar being replaced as finance minister with Maria Luis Albuquerque. The problem is that Portas heads the small rightist CDS-PP party which guarantees the government’s majority in parliament.


Nevertheless, Prime Minister Pedro Passos Coelho told the nation late on Tuesday that he did not accept Portas’ resignation and would continue to head the government to ensure political stability.
In parallel, according to local media, two more Portuguese ministers from the junior ruling coalition party were ready to resign on Wednesday, deepening turmoil that could trigger a snap election and avoid Lisbon to meet Troika goals what could lead to default.


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Multiple newspaper radio and television reports said Agriculture Minister Assuncao Cristas and Social Security Minister Pedro Mota Soares will 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.
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 and the PSI 20 stock index slumped 6 percent, led by sharp losses of over 10 percent in banks’ 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,” said political scientist Antonio Costa Pinto. “Failing that, however, we can hardly avoid an early election.”
“We see early elections as the most likely outcome at this stage, even if we cannot fully rule out support from some CDS MPs and the continuation of the government,” Barclays’ economist Antonio Garcia Pascual said in a note.