11 July 2013

FT: Portugal president's call for national unity backfires

An unexpected intervention by Portugal's president has reignited the country's political crisis, raising fresh uncertainties over the government's survival and the possibility of Lisbon needing a second bailout.

Aníbal Cavaco Silva’s call for a “national salvation” agreement between the ruling coalition and the main opposition party, leading to early elections in June 2014, was intended to restore calm following a government crisis triggered by the resignation of two senior ministers. But the president’s appeal for a cross-party deal in support of the country’s €78 billion bailout programme prompted a fresh increase in bond yields and hit share prices that had only just recovered from last week’s political turmoil.

Mr Cavaco Silva had been expected to endorse a cabinet reshuffle proposed by Pedro Passos Coelho, prime minister, in a bid to avert a snap election and heal a rift between the two coalition parties that had threatened to bring down the government and derail Portugal’s bailout. Instead, the president called on the two government parties and the centre-left Socialists (PS), the main opposition party, to hammer out a “medium-term agreement” to ensure “the governability of the country, the sustainability of public debt and the control of external accounts”.

But Mr Cavaco Silva’s call for a “patriotic commitment” to a cross-party deal has triggered renewed uncertainties over cabinet appointments and the future of the governing coalition.

Lisbon said it had asked the troika of international lenders – the European Commission, the International Monetary Fund and the European Central Bank – to carry out its next two quarterly reviews of Portugal’s progress with the bailout simultaneously in September to ensure the programme could be completed on schedule despite the “current political situation". Agreeing to Mr Cavaco Silva’s proposal would require António José Seguro, the opposition PS leader, to support €4.7 billion in planned spending cuts and the potential laying off of tens of thousands of state workers, measures that he vehemently rejected until now.

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