Portuguese Parties Seek ‘Salvation’ Pact as Soon as Possible

Portugal’s two coalition parties will resume talks with the main opposition Socialists in a bid to agree on a plan to stick to the country’s bailout program.

“The fundamental issues were identified with a view to obtain an agreement of national salvation with the maximum brevity,” the opposition Socialists and Prime Minister Pedro Passos Coelho’s Social Democratic Party said in separate statements e-mailed late yesterday after the parties met. The smaller conservative CDS is the second coalition party.

Talks began on July 14, when the parties discussed “work methodology” and gave themselves one week to reach an accord. The Social Democratic delegation is led by Jorge Moreira da Silva, while the Socialist Party’s team is led by Alberto Martins. Pedro Mota Soares heads the CDS group. David Justino, an adviser to President Anibal Cavaco Silva, also attended the meeting as an “observer,” the parties said.

The president, who has the power to dissolve parliament, called on the three parties on July 10 to reach an agreement that will allow Portugal to complete its aid program through June 2014 and set early elections to take place after that date. He also urged them to ensure debt will be sustainable with a new government after the European Union-led bailout ends.

Bond Yields

Portugal’s 10-year bond yield fell 11 basis points to 7.18 percent at 12:34 p.m. in London, up from 6.39 percent on July 1, the day before a rift in the coalition emerged. The yield breached a seven-month high of more than 8 percent on July 3. The country pays 3.2 percent on its bailout loans.

“Portugal has returned to the limelight following the political turmoil over recent weeks,” Ruben Segura-Cayuela, Sphia Salim and Ralf Preusser at Bank of America Merrill Lynch said in a client note today. “With 10-year yields at above 7 percent, and five-year yields flirting with that level, the prospects of regaining full market access by mid-2014 are diminishing substantially.”

The two coalition parties settled a split over budget policy on July 6 with Passos Coelho offering CDS leader and foreign minister Paulo Portas the post of vice premier and control over economic policy. While ruling out early elections right away, the president didn’t endorse the new coalition agreement between Passos Coelho and CDS, opting to call for a broader pact also involving the Socialists.

The eighth and ninth review of Portugal’s progress on meeting the terms of the 78 billion-euro ($102 billion) aid program will both now take place at the end of August or the start of September due to the “political situation,” the Finance Ministry said on July 11. The ministry had said the eighth review was due to start on July 15.

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