Portuguese stocks headed for their worst daily retreat since October 2008 after the leader of the second-largest party in the country’s coalition resigned, undermining the government’s ability to conduct business.
Banco Comercial Portugues SA declined the most in four weeks. Banco BPI SA retreated the most since November 2011. Banco Espirito Santo SA fell to its lowest price since August 2012. A gauge of banking shares had the biggest decline of the 19 industry groups on the Stoxx Europe 600 Index.
The benchmark PSI 20 Index slid 5.8 percent to 5,208.69 at 2:35 p.m. in Lisbon. Portuguese borrowing costs topped 8 percent for the first time this year after mounting opposition to budget cuts prompted the finance and foreign ministers to resign as the nation’s bailout program enters its final 12 months. The PSI 20 has fallen 18 percent since its 2013 high on May 7.
“The ghosts of the periphery are coming back, we cannot risk having a resumption of the crisis,” Alberto Espelosin, who helps oversee $1.5 billion at Abante Asesores Gestion in Madrid, said in a phone interview today. “This will put pressure on the European Central Bank to do something, to finally expand its balance sheet.”
ECB policy makers including President Mario Draghi have said they’ll maintain a loose monetary stance for as long as needed, while urging euro-area governments to cut their deficits and boost investment. The Euro Stoxx 50 Index fell as much as 35 percent in 2011 as a euro-area debt crisis grew.
Portuguese Prime Minister Pedro Passos Coelho told voters in a televised speech from Lisbon yesterday that he’s trying to hold his government together.
Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit in protest at the government’s budget policy. He was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union.
Portas disagreed with the prime minister’s decision to name Secretary of State for Treasury Maria Luis Albuquerque as a replacement for Gaspar, saying it would mean a continuation of the policies deepening the country’s recession.
“The position of the prime minister is now very fragile, with the country’s political centre of gravity moving further away from supporting the adjustment, and we consider that the relationship between Lisbon and the troika is going to significantly sour,” Gilles Moec, an economist at Deutsche Bank AG in London, wrote in a report.
The troika refers to the tripartite committee overseeing the implementation of aid to the country, formed by the European Union, the ECB and the International Monetary Fund.
“This will probably fuel the current widening in the Portuguese spread, casting further doubt on the sovereign’s capacity to access the market, as well as make any additional support to Portugal from the troika more complicated,” Moec wrote.
Banco Comercial slumped 15 percent to 7.9 euro cents. BPI declined 13 percent to 78.3 cents. Banco Espirito Santo dropped 11 percent to 54.5 cents.