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Portuguese Parties Hunt Bailout Plan in Sixth Day of Talks

Portugal’s ruling coalition parties and the main opposition Socialists met today in Lisbon for a sixth day of talks as they search for a plan to comply with a European Union-led bailout.

“We want an agreement with substance for the future,” Prime Minister Pedro Passos Coelho, who leads the Social Democrats, said at a party meeting last night. “We don’t want a make-believe agreement.”

President Anibal Cavaco Silva, who has the power to dissolve parliament, called on the parties on July 10 to reach a “national salvation” agreement that will allow Portugal to complete its aid program in June 2014 and set early elections for after that date. He also urged them to ensure debt will be sustainable with a new government after the bailout.

The parties gave themselves one week to reach an accord when negotiations began on July 14. The government is backed by the Social Democrats and the smaller conservative CDS party, which together have a majority of seats in parliament, and the coalition’s term ends in 2015. The Socialists have opposed some of the government’s planned spending cuts.

‘Going as Expected’

“Things are going as expected,” President Cavaco Silva said yesterday on television station TVI. “I’m confident, but I’m not sure what the final outcome will be.”

Portugal’s 10-year (GSPT10YR) bond yield fell 22 basis points to 6.81 percent at 1:45 p.m. in London, up from 6.39 percent on July 1, the day before a rift in the coalition emerged. The yield breached a seven-month high of more than 8 percent on July 3. The country pays 3.2 percent on its bailout loans.

Uncertainty about elections could harm the country’s efforts to regain access to the bond market, Prime Minister Coelho said last night. Debt agency IGCP said on July 12 that it plans to resume “regular issuance” of bonds “only if market conditions are conducive.” Financing needs for 2013 are “fully covered,” and in the second quarter the debt agency started to “pre-fund” for borrowing needs in 2014, IGCP said.

Bailout Review

The two governing parties settled a split over budget policy on July 6, with Coelho offering CDS leader and Foreign Minister Paulo Portas the post of vice premier and control over economic policy. Instead of endorsing that deal, the president urged the parties to seal a broader pact also involving the Socialists even as he ruled out triggering an election immediately.

Coelho said in parliament yesterday he plans to go ahead with the proposed cabinet changes if the two coalition parties and the Socialists reach an agreement. Parliament yesterday rejected a censure motion against the government presented by the Greens.

The eighth review of Portugal’s progress on meeting the terms of the 78 billion-euro ($102 billion) aid program has been pushed back to the end of August or the start of September because of the political situation, the Finance Ministry said on July 11. The review had been due to start on July 15.

To contact the reporters on this story: Joao Lima in Lisbon at jlima1@bloomberg.net; Anabela Reis in Lisbon at areis1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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