EU SUMMIT:PORTUGAL WAS on its way to an early election last night as its ongoing political crisis worsened, greatly complicating efforts to avert the euro zone's third EU-IMF bailout.
The turmoil, which overshadowed the formal adoption by EU leaders of their new “grand bargain” for the euro zone, makes it increasingly difficult for the country to survive without an external intervention.
As the main opposition leader urged President Aníbal Cavaco Silva to call a poll in May or June, any slim prospect that a new coalition might be formed to break the deadlock appeared to be fading rapidly.
Portuguese borrowing cost over 10 years breached the 8 per cent barrier for the first time since the euro was introduced, adding further to penal funding burden, which is already deemed “unsustainable” by the authorities in Lisbon and many other euro zone capital cities.
In a further sign of tension, the cost of insuring against any default on Portuguese debt also rose. Such pressures make Lisbon’s position increasingly precarious as it faces a €4.3 billion bond repayment in mid-April, even though it probably has enough money to repay that debt.
The country, which has another big redemption falling due in June, has been struggling for many months to win market confidence against investors who are very sceptical about its low prospects for economic growth and ailing public finances.
Pedro Passos Coelho, leader of the opposition Social Democrats, made it clear after meeting the president that he was he was in no mood for compromise with Prime Minister José Sócrates.
“I told the president that in our opinion the way to overcome the political crisis . . . is to call an early election. We are convinced the election has to take place as soon as possible and we proposed May 29th,” Mr Passos Coelho told reporters.
There was no mention of any willingness to engage in coalition talks as other opposition leaders suggested an election on that date or on June 5th.
An election cannot be held for 55 days after it is called, a timeframe which would overshoot the April bond redemption by weeks.
With talks to form a government likely to continue long after polling day, officials and diplomats in the euro zone have been examining how they might facilitate an emergency application for bailout aid from a caretaker government.
There is doubt, however, over the legal powers of such an administration to negotiate an EU-IMF rescue package, particularly one which includes any policy elements rejected in a key parliamentary vote on Wednesday night.
The crisis was prompted by the refusal of the Social Democrats to back a drastic new austerity plan from the minority Socialist administration of Mr Sócrates, the fourth such plan in a year.
This prompted Mr Sócrates’s resignation, which the president refused to accept pending emergency talks yesterday with each of the country’s parliamentary leaders.
In a fractious political system, the dispute was sparked by the prime minister’s failure to provide briefings on the latest austerity initiative to the opposition parties before he submitted them to the EU authorities.
Although the opposition parties backed the three previous austerity initiatives, they reversed that practice by threatening to vote down the new plan.
This resulted in Mr Sócrates’s threat to resign if he did not receive parliamentary support, a move he duly made when the plan was voted down in parliament on Wednesday night.