Portugal Has Overcome Coalition Crisis, Schaeuble Says

German Finance Minister Wolfgang Schaeuble said Portugal has surmounted the political turmoil that threatened to bring down the government after the two coalition parties reached an agreement to avert early elections.

“We know that the government crisis has been overcome in Portugal,” Schaeuble said today in Brussels, where he was attending a meeting of euro-area finance ministers. “Portugal will continue on its successful path.”

Prime Minister Pedro Passos Coelho said two days ago that Paulo Portas, the leader of the conservative CDS party, will become vice premier. Portas will be responsible for coordinating economic policy and the relationship with the so-called troika of officials from the European Commission, the European Central Bank and the International Monetary Fund that oversee 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 minister in a dispute over budget policy with the premier. 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.

“Our baseline view is that Portugal will continue to broadly fulfill the requirements of the financial-assistance program despite its challenges due to the weakness in economic activity,” Silvia Ardagna, an analyst at Goldman Sachs Group Inc., wrote in a note to clients.

Parliamentary Majority

While Portas may be increasing his influence in the Cabinet, the new accord also binds him closer to a government that’s implementing unpopular austerity measures. Coelho, who leads the Social Democrats, needs the smaller CDS party for a majority in parliament to pass legislation and comply with the terms of the EU-led bailout.

Portas hasn’t spoken publicly since announcing his intention to quit.

Coelho presented the agreement between the two coalition parties on July 5 to President Anibal Cavaco Silva, who still has to assess the plan. Cavaco Silva, who as president has the power to dissolve parliament and call early elections, is holding discussions with political parties today and tomorrow. He’s also meeting Bank of Portugal Governor Carlos Costa later today.

‘Pretty Relaxed’

Other proposed Cabinet changes are to be announced by the president, the prime minister said on July 6. Antonio Pires de Lima, chief executive officer of brewer Unicer SA and a CDS party official, may be named economy minister, the newspaper Jornal de Negocios reported on July 5. Agriculture Minister Assuncao Cristas and Social Security Minister Pedro Mota Soares are the other CDS representatives in the Cabinet.

Portas said he was resigning after opposing the premier’s decision to name Secretary of State for the Treasury Maria Luis Albuquerque as finance minister to replace Gaspar. Coelho has confirmed that Albuquerque will remain finance minister.

“She was previously deputy minister and we all know her very well and I believe there will be no change in substance, and that’s why I’m pretty relaxed,” Schaeuble said.

Portugal’s bond yields fell today after the 10-year rate jumped to a seven-month high of more than 8 percent on July 3 as the rift in the coalition emerged. The yield dropped 20 basis points to 6.93 percent at 4:42 p.m. in London. 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.

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, Gaspar said in May.

Portas said May 5 the government was seeking a “more realistic” budget deficit target for 2014 than the goal of 4 percent of gross domestic product set by the troika.

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