Fears that Portugal will not be able to leave its €78 billion bailout next year without another tranche of international help, and that it may be forced into a destabilising election yesterday saw a surge in its 10-year bond yields to above 8.1 per cent and a sharp decline in its stock market. In a desperate attempt to shore up the centre-right coalition President Anibal Cavaco Silva has now called crisis talks with the parties in what many see as a forlorn hope of putting together a grand coalition.
The crisis, a direct reflection of the stresses involved in managing the country's painful austerity programme, has been triggered by the resignation of Finance Minister Vitor Gaspar, frustrated at his own failure to meet budget targets, and by the appointment as his successor of Treasury Secretary Maria Luis Albuquerque, very much cut from the same cloth.
All too much for junior coalition partner the conservative CDS-PP, whose leader, Paulo Portas, has been critical of the unpopular cutbacks' effect on growth and who wanted a say on who would fill the job. He resigned on Tuesday as foreign minister and may yet pull his party's other two ministers out of government.
Prime Minister Pedro Passos Coelho, determined to press on with the troika-agreed programme, faces the immediate challenge of the latter's review visit, scheduled for July 15th, and in September both local elections and a hugely difficult budget preparation. His loss of Gaspar, widely respected in EU capitals, is already having a corrosive effect there and in markets on the country's economic credibility.
If the president fails to broker a new broader coalition and is forced to call a general election, polls suggest that the Socialists would comfortably win but fail to secure an overall majority. To form a government they would also require CDS-PP support, not likely to be forthcoming.
As he contemplates the mess in the economy going through the experience most akin to our own, Taoiseach Enda Kenny will be thanking his lucky stars for his coalition’s hefty majority – defections notwithstanding.