Political crisis in Portugal rages after talks fail

People walk past by a political billboard at a street in Lisbon. Portugal’s main opposition Socialists and the ruling coalition have broken off talks, leaving it to the president to decide how to end a political crisis that threatens Lisbon’s bailout exit, Socialist leader Antonio Jose Seguro said. The text on the billboard reads ‘All that have been robbed has to be returned’.

Reuters/Lisbon

Portugal’s main political parties broke off talks late on Friday on a “national salvation” pact to ensure an EU/International Monetary Fund bailout stays on track, leaving it to the president to decide how to proceed.

Political turmoil has already forced Lisbon to request a delay in the eighth review of the bailout by its creditors, which was initially due to start last Monday, until the end of August or early September.

The 78bn-euro ($102.5bn) bailout programme and attached austerity policies are associated with the worst recession in Portugal since the 1970s.

The leader of the main opposition Socialists, Antonio Jose Seguro, said the ruling coalition had rejected most of his party’s proposals aimed to renegotiate the terms of the bailout.

The crisis, which started as an internal political rift in the ruling coalition and expanded to a debate over the bailout plan, has threatened to derail Portugal’s planned exit from the bailout and full return to debt markets in mid-2014.

The government says abandoning austerity would undermine Lisbon’s credibility with lenders and investors.

“There were two different visions to exit the crisis. That being clear, it made no sense to continue negotiating for the sake of negotiating,” Seguro told reporters after meeting President Anibal Cavaco Silva.

Seguro said whether to go ahead with 4.7bn euros’ worth of government-proposed budget cuts had been a major sticking point.

“Many of you ask yourselves, and now what? It is up to the president to decide,” Seguro said.

Analysts say the situation is very uncertain but the president could still avoid an escalation of the crisis by keeping the ruling coalition in place rather than using his power to dissolve parliament and call a snap election.

The rift in the coalition broke out in early July with two senior ministerial resignations.

It was followed by a U-turn that appeared to have healed the split, only to be shot down by the president who rejected a proposed cabinet reshuffle and called for a deal of “national salvation” to back the bailout policies and hold an early election after the end of the programme in mid-2014.

“I find it very hard to believe that the president will go for a snap election now after he said so much last week about the danger of such a move,” said Marina Costa Lobo, political scientist at the University of Lisbon.

“What could be on the table is a government reshuffle, possibly different from the one proposed by the premier, or a government picked by the president,” she said.

Portugal’s ruling Social Democrats (PSD) said yesterday that their coalition government would press on with meeting the country’s economic bailout goals despite the failure of the talks.

“We consider there are conditions of stability and cohesion in the coalition, that there are conditions for us to be able to fulfil the memorandum of understanding and lay the basis for sustainable growth and conditions for greater social justice,”

PSD vice-president Jorge Moreira da Silva told reporters.

“We lament the result of this dialogue process, but the Portuguese people know they can keep counting on us,” he said, adding that his party awaited the president’s evaluation “with serenity and confidence”.