Portuguese political crisis cooled but not cured

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Portuguese political crisis cooled but not cured

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A political crisis has been averted in Lisbon with the result that Portugal is back on track to meet the terms of the international bailout that saved the country from going bankrupt.

President Anibal Cavaco Silva has decided not to call for early elections which means the centre-right coalition government will remain in place until the end of its term.

So no more political uncertainty – for now – and Portugal’s Prime Minister Pedro Passos Coelho has vowed to stick to the country’s bailout programme.

“We will rebuild the confidence without raising any doubts about the process we are carrying out, saying ‘yes, we want to complete the assistance programme on the agreed date’,” he said.

That calmed nerves in the financial markets. Rui Barbara, a broker at Carregosa Bank, monitored market reaction: “Mainly positive it’s the main equity indexes going up and the yields on the Portuguese bonds are, well, stabilising.The government will continue at least until the new elections that are two years from now, and they are compromised with the troika and the measures that were agreed so I think everything goes back to what it was one month ago.”

The coalition nearly split three weeks ago when the leader of the junior party threatened to resign in an ongoing row over austerity.

The problem is the crisis is cooled but not cured; tensions remain within the coalition and Portugal may yet need a second bailout.

“On the face of it, one might construe this (decision) to be a positive in so much as it is seen reducing the risk of a reform hiatus,” analysts at Rabobank wrote in a research note.

“But, this maintenance of the status quo does nothing to address the divergences of opinion within the ruling coalition which are likely to return to the fore before too long.”