Portuguese President Says Parliament to Decide Coelho's Fate

  • Premier Coelho no longer holds majority in parliament
  • Opposition leader wants to form an alternative government

Portuguese President Anibal Cavaco Silva said parliament will have the “final word” on whether Prime Minister Pedro Passos Coelho can go ahead with his second term.

“It’s up to the members of parliament to assess the government program that the prime minister will present within 10 days of his nomination,” Silva said in a televised address on Thursday night in which he appointed Coelho. The president on Oct. 6 had asked Coelho, 51, to try to form a new government, which he said must comply with European Union rules on budget discipline.

Social Democratic Premier Coelho on Oct. 4 won the most seats in the first general election since 2011, though his coalition fell short of the majority it had in the past four years when Portugal completed a bailout program. Socialist opposition leader Antonio Costa on Tuesday said he could form a stable government backed by a majority in parliament including the Left Bloc and the Communist Party that would be an alternative to a new term under Coelho.

Portuguese bonds unwound an earlier tightening move, after outperforming in the morning. Yields on the nation’s 10-year bonds rose five basis points, or 0.05 percentage point, to 2.37 percent. Those on Spanish and Italian securities with a similar due date also rose five basis points.

“Political developments will undoubtedly continue to drive spreads wider” even as Portugal’s strong funding position and European Central Bank’s asset-purchase program are potential positive factors, economists including Apolline Menut at Barclays Plc in London said in a note Friday. “Uncertainty and instability are likely to be key features of the Portuguese political landscape in the months ahead.”

The president said no guarantees were presented for “a stable, lasting and credible alternative solution.” He also said that in 40 years of democracy in Portugal, the election winner was always asked to form a government.

‘Catastrophic’ Future

This appointment “wastes the country’s time,” Joao Soares, a Socialist member of parliament, said on television station SIC after the president’s speech. “This new prime minister will fall in parliament. I have no doubts about that.”

The Socialists reaffirmed in a statement on Friday that they won’t let a new coalition government pass in parliament as they can offer an alternative backed by a majority. The Socialist Party will present a motion to reject any program that essentially keeps the policies of the first Coelho government, and Costa will conclude an agreement with the Left Bloc and the Communists.

The Left Bloc has said it wants to restructure the country’s debt. The Communist Party has said Portugal should prepare to exit the euro.

“Outside the European Union and the euro, the future of Portugal would be catastrophic,” President Silva said. “It’s my duty to do everything to prevent the transmission of wrong signals to financial institutions, investors and markets.”

Socialist leader Costa, who has proposed narrowing the deficit slightly slower than Coelho, says he would comply with Portugal’s EU commitments. Costa, 54, has said he won’t block a new Coelho government if he can’t offer a stable alternative.

Short-lived Governments

The coalition grouping Coelho’s party and smaller conservative party CDS would need the Socialists to at least abstain in parliament for legislation to pass.Since losing the 2011 election after requesting the bailout, the Socialists voted alongside the ruling coalition on policies including the European Stability Mechanism treaty.

The ruling parties won 107 of the 230 seats in parliament. The Socialists have 86 members of parliament, while the Left Bloc and the Communists hold 19 and 17 seats, respectively.

Portugal is no stranger to forming minority governments, though they tend to be short-lived. It’s more than 15 years since Socialist leader Antonio Guterres led the only minority government in Portugal to survive a full term since 1974, when a four-decade dictatorship ended.

Parliament can’t be dissolved less than six months after it’s elected or in the last six months of the president’s term, which is the case now as Silva will step down in January. He was re-elected for his second five-year term as president in January 2011, taking 53 percent of the vote; he’s constitutionally barred from a third consecutive term.

Silva, 76, served as prime minister from 1985 to 1995 and presided over the 1992 signing of the Maastricht Treaty, which cleared the way for the euro common currency. His first government was backed by a minority in parliament and was ousted after two years following a censure motion. His Social Democratic Party then won parliamentary majorities in the ensuing early election in 1987 and in the following vote four years later, getting more than 50 percent backing in both cases.

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