Portuguese President Steadies Ship

The President of Portugal, Anibal Cavaco Silva, has rejected opposition calls for immediate, fresh elections in the wake of the resignations of the Finance and Foreign Ministers resigned within a week of each other. The resignations were both related to the country’s austerity measures with the Finance Minister feeling that his position had been undermined by the failure to get two successive budgets fully implemented and reversals of some of his policies by the Constitutional Court. His colleague resigned because the government was not prepared to change course on austerity which is very unpopular with the people of Portugal (naturally) and is blamed, in some quarters, for prolonging the Portuguese recession.

Uncertainty about the viability of Portugal’s coalition government has led to rising yields on Spanish and Italian bonds. Should the Portuguese wish to raise funds through the bond market, the ECB would intercede to buy them if the market yields became prohibitive since Portugal has received an IMF/EU bailout – in principle, Italy and Spain could not benefit from this support since they did not receive such a bailout.

President Silva has approved a cabinet reshuffle and is urging that a compromise be found which will avoid the possibility of Portugal needing to turn to its EU partners for a second bailout. In his opinion, acquiescing to the request to dissolve parliament would be “extremely negative” for Portugal’s credibility. The bailout is in the second of its three-year lifetime. He called on parties to work together until the bailout terms have expired. "I will give my firm support to this deal, which in the current context of emergency truly represents a commitment of national salvation," he said.
The bailout package required that Portugal make reforms to put its economy on a stable footing involving tax increases and labour market reforms. The idea was to return the public deficit to less than 3% of GDP by the end of the exercise. Unemployment in the country stands at 17.5% and the economy is expected to contract by a further 2.3% this year.