Political Turmoil In Portugal

The Global Financial Crisis has taken its toll on politicians around the world with many governments falling as voters take out their frustration at austerity measures, unemployment and the general economic plight they see all around them.

In Portugal, the cost of fresh government borrowing became so expensive that the nation was forced to become the third Eurozone country to require an IMF/EU bailout of €78 billion in May 2011. The deal was followed by elections which ousted the sitting government. Progress by Portugal under the terms of the bailout has been hailed by the troika of EU, IMF and ECB officials as good, but a fresh political crisis has caused the glowing embers of the European sovereign debt crisis to threaten to reignite.

Two ministers have resigned from the government in the course of the last week. Monday saw the resignation of Victor Gaspar, the Finance minister, and on Wednesday Foreign Minister Paulo Portas tended his resignation. Mr Portas is head of the Popular Party which is a junior partner in the ruling coalition. Mr Gaspar’s resignation was linked to a decline in public support for policies needed to sort out the nation’s finances; objections by the Constitutional Court to parts of two successive budgets; and the failure of Portugal to hit its deficit reduction targets. Mr Gaspar’s resignation was related to the government’s decision to stick to its strict austerity plans.

Rumours abound that two further ministers may resign and this casts the viability of the government itself into question. Markets have reacted badly with the stock market falling by 5.3% and the yield on 10-year bonds hitting 8%. The yield on Italian and Spanish bonds has also risen, raising fears of a knock-on effect. The Portugese PM, Pedro Passos Coelho has made it clear that he intends to stay in office and the President will hold meetings with all parties to try to resolve the current crisis.