July 9 (Bloomberg) -- Paulo Portas, leader of Portugal’s conservative CDS party who said he was resigning as minister last week, said the ruling coalition can ensure stable government after its two parties reached an deal to avoid early elections.
“Political stability is relevant not only for governing but also to conclude the financial aid program,” Portas said in Lisbon today after meeting Portuguese President Anibal Cavaco Silva. The economy, companies, job creation and social consensus are “very important matters” in the second phase of the government’s term in office, Portas said.
Portuguese Prime Minister Pedro Passos Coelho, a Social Democrat, on July 6 said Portas will become vice premier and be responsible for coordinating economic policy and the relationship with the so-called troika of officials from the European Commission, European Central Bank and International Monetary Fund that oversees an aid program for Portugal ending in June 2014.
A new coalition agreement was needed after Portas said on July 2 he was quitting as foreign affairs minister in a dispute over budget policy with the prime minister. Coelho, who lost Finance Minister Vitor Gaspar the day before, refused to accept the resignation, citing Portas’s role as leader of a coalition party. Portas never left the Cabinet because Coelho didn’t submit his resignation to the president.
While Portas may be increasing his influence in the Cabinet, the new accord now binds him closer to a government that’s implementing unpopular austerity measures than when he was foreign minister. Coelho, who leads the Social Democrats, needs the smaller CDS party for a majority in parliament to pass measures and comply with the terms of the EU-led bailout.
“Portas’s recent act of brinkmanship was likely aimed more at increasing his influence over the economic reform process than actually bringing the government down,” Mujtaba Rahman, a London-based analyst at Eurasia Group, said in a note today. “Portas and perhaps a new CDS economy minister will press for more employment and growth-oriented economic policies alongside moderation of fiscal consolidation.”
The Portuguese government is seeking a “more realistic” budget deficit target for 2014 than the 4 percent goal set by the troika of EU and IMF officials, Portas said on May 5.
Portugal’s 10-year bond yield dropped 17 basis points to 6.76 percent at 3:23 p.m. in London today, after jumping to a seven-month high of more than 8 percent on July 3 as the rift in the coalition emerged. That’s still up from 6.45 percent on June 28, the last trading day before Gaspar resigned on July 1, and from 5.19 percent on May 21, the lowest in almost three years. The country pays 3.2 percent on its bailout loans.
Coelho on July 5 presented the agreement between the two coalition parties to President Cavaco Silva, who still has to assess the plan. The president, who has the power to dissolve parliament and call early elections, met political parties yesterday and today. He’s also meeting trade confederations this afternoon and labor groups tomorrow morning.
“We have great confidence in the stability and cohesion of the coalition,” Jorge Moreira da Silva, an official of the Social Democrats, said today after meeting Cavaco Silva. “We transmitted to the president our concern about any scenario of early elections.”
Early elections would complicate the next review of Portugal’s aid program, an EU official told reporters in Brussels on July 3.
“I do think that the Portuguese government can make a fresh start,” Luxembourg Finance Minister Luc Frieden said in Brussels today. “Not everything is in place yet, but I do think that the Portuguese government wants stability and that it is also willing to fulfill all that we in the euro group demand of Portugal.”
The eighth review of Portugal’s progress on meeting terms of the 78 billion-euro ($100 billion) aid program is due to start July 15, the Finance Ministry said last month. The government has started raising cash to finance its 2014 deficit after covering its needs for this year, then-Finance Minister Gaspar said in May.
The Socialists, Portugal’s biggest opposition party, reaffirmed a call for Portugal to have early elections. They led Coelho’s Social Democrats by 14 percentage points in a poll last month.
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