Wednesday

8th Feb 2023

Portuguese government at risk of collapse over austerity

  • On the brink? Pedro Coehlo has lost his finance and foreign ministers in two days (Photo: consilium.europa.eu)

The Portuguese government is on the brink of collapse after foreign minister Paulo Portas handed in his resignation, just 24 hours after finance minister Vitor Gaspar gave in his notice.

Gaspar, whose replacement, Maria Luis Albuquerque starts work on Wednesday (3 July), identified increasing public disaffection with the government's austerity drive as the reason for his resignation.

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But Albuquerque, who has been promoted from treasury secretary, is widely expected to continue the country's austerity drive.

In a letter to Prime Minister Pedro Passos Coehlo, Portas wrote that it is "not politically sustainable" for him to remain in government.

He added: "Given the decisive importance of the finance minister, staying in government would be a pretence."

With Portas also the leader of the right-wing People's party which guarantees the majority of the ruling centre-right coalition, his resignation puts Coehlo's premiership on the brink of collapse.

But with opinion polls putting Coehlo's social democratic party on around 25 percent - 10 points behind the opposition socialists - the government is keen to avoid a snap election.

The next vote is not formally due until October 2015.

Since being forced to request a three-year €78 billion bailout in June 2011, the government has been praised by its creditors for diligence in making deep cuts to public spending alongside tax increases.

Like Ireland, which also received emergency loans, in June Portugal was given a seven year extension to repay the €26 billion it received from the European Financial Stability Facility (EFSF) as part of its rescue package.

Meanwhile, Coehlo is anxious for Portugal to leave the bailout programme on time in June 2014 and to return to debt financing on the markets.

Earlier this year the government put in place new cost-cutting measures, including an extension in working hours and hiking the state retirement age from 65 to 66, despite objections from the country's Constitutional Court.

However, the austerity drive has come at a cost.

Despite the cuts, Portugal's budget deficit is not expected to fall below 5.5 percent in 2013, while the economy is now in its third successive year of recession and is expected to contract by a further 2.3 percent in 2013.

The country's unemployment rate is expected to clear 18 percent this year.

Later this month, representatives of Portugal's creditors from the European Commission, the International Monetary Fund and the European Central Bank - known as the troika - will arrive in Lisbon to conduct a review of its bailout programme.

Elsewhere, troika representatives are in Athens for the final two days of their review of Greece's implementation of its bailout programme.

Eurozone finance ministers will meet in Brussels next Monday to decide whether to approve the latest €8 billion tranche of funding for Greece.

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