Portugal’s Portas Quits Over Choice of New Finance Minister
Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, handed in his resignation after disagreeing with Prime Minister Pedro Passos Coelho’s choice for finance minister.
“The prime minister decided to follow the path of mere continuity at the Finance Ministry,” Portas said in a statement e-mailed by the Foreign Affairs Ministry. “I respect that but disagree.”
Coelho yesterday named Secretary of State for Treasury Maria Luis Albuquerque to replace Vitor Gaspar as finance minister, two years after the government took office. The government has been backed by Coelho’s Social Democrats and the conservative CDS party, which together have a majority of seats in parliament. Coelho is due to speak at 8 p.m. in Lisbon.
The political turmoil comes amid an increase in Portugal’s bond yields since May, when the country was able to sell 10-year (GSPT10YR) bonds for the first time in more than two years. It had stopped selling bonds until this year after requesting a bailout in April 2011 following a surge in debt levels and borrowing costs.
“It’s still not clear if this is just a minister being replaced or if this will lead to a minority government and pave the way for early elections, but there was an acceleration of market pressure at the end of trading,” said David Schnautz, a strategist at Commerzbank AG in New York. “It sounds the alarm bell of austerity fatigue.”
The yield on Portugal’s benchmark 10-year bond rose 33 basis points, or 0.33 percentage point, to 6.72 percent today. The two-year bond yield climbed 7 basis points to 3.504 percent. The extra yield that investors demand to hold Portugal’s 10-year bonds instead of equivalent German bunds has narrowed to 5.01 percentage points from a euro-era record of 16 percentage points in January 2012.
Portugal pays an average interest rate on its aid loans of 3.25 percent, Coelho said on May 10. The country’s debt is ranked below investment grade by Fitch Ratings, Moody’s Investors Service and Standard & Poor’s.
Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of a 78 billion-euro ($101 billion) aid plan from the European Union and the International Monetary Fund. He announced measures on May 3 intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers.
On March 15, the government announced less ambitious targets for narrowing its budget deficit as it forecast the economy will shrink twice as much as previously estimated this year. It targets a deficit of 5.5 percent of gross domestic product in 2013, 4 percent in 2014 and below the EU’s 3 percent limit in 2015, when it aims for a 2.5 percent gap. Portugal forecasts debt will peak at 123.7 percent of GDP in 2014.
In September, Portugal was given more time to narrow its budget gap after tax revenue missed forecasts.
“The repetition of this slippage undermined my credibility as finance minister,” Gaspar said in his resignation letter yesterday.
The Socialist Party, the biggest opposition group, saw its lead over Coelho’s Social Democrats widen by 2 percentage points in a June 7 survey of voters’ intentions, published by weekly newspaper Expresso. The Socialists’ support increased to 36.9 percent from the previous month compared with 24.8 percent for the Social Democrats. The CDS was on 7.7 percent.
Coelho formed the majority coalition with the CDS after June 2011 elections, taking over from a Socialist minority government that had requested the EU-led bailout in April 2011. The Social Democrats have 108 seats in the 230-member parliament, while the CDS party has 24 seats.
Coalition governments in Portugal have tended to be unstable and short-lived. Between 1974, when the country returned to democracy after a four-decade dictatorship, and Coelho’s election in 2011, Portugal had six coalition governments, none of which survived a full term.
The last one collapsed in 2004 after two years when Jose Barroso resigned to head the European Commission and newly appointed Prime Minister Pedro Santana Lopes was ousted by President Jorge Sampaio.