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Portuguese Government Scrambles to Avert Political Crisis

  • Selah Hennessy

People shout slogans during a protest by the Portuguese Communist party, demanding the breakup of the Portuguese parliament and early elections, in Lisbon, July 3, 2013.

People shout slogans during a protest by the Portuguese Communist party, demanding the breakup of the Portuguese parliament and early elections, in Lisbon, July 3, 2013.

Portugal's leaders worked to save their coalition government Thursday after two cabinet members resigned. The political turmoil in Portugal has been rocking the markets, and analysts say it is a clear indicator the eurozone crisis is far from over.

A spokesperson for the Portuguese government said Thursday that talks between the prime minister and his coalition partners were taking place in a “very positive atmosphere.” No further details were given.

Prime Minister Pedro Passos Coelho was meeting with the leader of the rightist CDS-PP party to heal the rift that erupted after the country’s finance minister and foreign minister both resigned this week.

Their resignations follow widespread discontent over Portugal’s tough austerity measures.

Ramon Pacheco Pardo from the European and International Studies department at King’s College London says it is a change for the Portuguese government, which until now has appeared united in its austerity drive.

“This is a new move in Portuguese politics toward some people making it clear that they do not agree with the policies that they are being demanded to implement," he said. "So we see that the broader agreement that seemed to exist among the main political parties in Portugal does not really exist.”

At this point, he said, it is unclear what will happen, but if talks fail there could be new elections in the coming months.

The government is working to complete its $102 billion bailout next year. But its austerity drive, which is a requirement of the international loan, has forced the country even deeper into its worst economic slump since the 1970s.

Pardo said the government’s determination to pursue austerity might be crumbling.

And if Portugal begins a shift away from austerity, other European nations could follow.

“It is very likely that in other European countries, and we have seen this more openly in Greece for example, politicians might not be willing to carry on with these cuts,” said Pardo.

The markets reacted quickly to Portuguese political unrest. The Portuguese 10-year government bond yield spiked to eight percent on Wednesday - close to the levels reached two years ago, when Portugal was forced to seek a bailout.

Christian Schweiger, a Europe expert at Durham University, said the market reaction is worrying.

“This shows that the European crisis is definitely not over,” he said.

And he said Portugal is not on its own. Popular discontent over austerity is widespread across Europe, not least because of soaring unemployment levels among the youth. Schweiger said euro countries could see growing unrest.

“If you look at Cyprus for example, we have heard nothing of Cyprus in the last few weeks, but we do not know if a similar situation could not arise given that we had quite large protests against the austerity measures that Cyprus has to implement,” he said.

European Union and International Monetary Fund auditors are due to arrive in Portugal on July 15 to review the country’s progress on economic reforms. Those reforms are a prerequisite for Portugal getting the next tranche of its international loan.