Portuguese president summons party leaders to resolve coalition crisis

Markets wobble and risk premium spikes due to ministerial resignations and government rift

Portuguese President Aníbal Cavaco Silva has called Prime Minister Pedro Passos Coelho and other party leaders to a meeting at the Belém presidential palace on Thursday to try to find a response to the political crisis that has destabilized the country and sent investors fleeing in recent days.

The Lisbon stock exchange plummeted more than six percent after opening on Wednesday following the Tuesday resignation of Foreign Minister Paulo Portas, leader of the conservative Christian Democrats (CDS-PP), which is a crucial government partner of the prime minister’s center-right Social Democratic Party (PPD-PSD). The two other CDS-PP ministers in the cabinet have also resigned, according to the daily Diário de Notícias, as have the party’s secretaries of state. The benchmark 10-year bond has risen 150 basis points since Monday as a result of the political crisis, breaking the psychological eight-percent barrier.

As planned, Passos Coelho traveled to Berlin on Wednesday to attend the European employment summit. Confronted with the contagion effect events in Portugal were having on other markets, the European Commission has sent a letter to Lisbon asking for it “to clear up the situation as soon as possible.”

Portas said he was stepping down because of a disagreement with the prime minister over economic policy following Monday’s resignation of Finance Minister Vítor Gaspar. In his resignation letter, Gaspar told Passos Coelho that the government should abandon the more restrictive aspects of its austerity policies in favor of a new growth phase.

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