Portugal markets recover as leaders look to defuse crisis | Business| Economy and finance news from a German perspective | DW | 04.07.2013
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Portugal markets recover as leaders look to defuse crisis

Portugal's markets have recovered somewhat after a scare that coincided with the country's political crisis. The European Central Bank has ruled out the immediate likelihood of it buying Portuguese government bonds.

Portugal's 10-year borrowing rate fell back to 7.216 percent on Thursday after having surged to over 8 percent briefly during trading the day before, the first time the yield had been so high since 2012.

Lisbon's key PSI 20 index also rebounded 3.36 percent to 5,412.4 points after taking a 5.31 dip Wednesday.

#video#Portugal was on the brink of bankruptcy two years ago before the country received bailout loans of 79 billion euros ($101 billion) from the International Monetary Fund (IMF) and European Union. But with those loans came conditions on budget and economic reforms and there are concerns those programs could be undermined by Portugal's political crisis, sparked by the resignations of Finance Minister Vitor Gaspar and Foreign Minister Paulo Portas earlier this week.

Gaspar, the architect of Portugal's austerity program, stepped down because of what he said was a lack of support for the bailout. Portas resigned because he objected to Gaspar's replacement.

European Central Bank chief Mario Draghi on Thursday afternoon ruled out the possibility of the ECB buying Portuguese government bonds in an effort to defuse the crisis. Draghi said the country did not meet the criteria to qualify, given that it did not regularly issue long term bonds.

Meanwhile, the banking leader praised the Portuguese reform process, aimed at balancing the government’s books. It had been a "painful route and the results achieved have been quite significant, remarkable, if not outstanding," Draghi told a news conference in Frankfurt.

Crisis talks

Gaspar and Portas belong to the rightist CDS-PP party, the junior member of Prime Minister Pedro Passos Coelho's (pictured above) ruling coalition. The prime minister and his CDS-PP allies were getting together on Thursday, after a previous meeting overnight, to try to smooth the country's political divide.

Passos Coelho has refused to accept his ministers' resignations and has so far been adamant he can preserve the ruling coalition headed by his Social Democratic Party and prevent snap elections.

"I am convinced that it will be possible to find the necessary conditions to ensure the stability of the government," he told reporters in Berlin while attending a youth unemployment summit Wednesday.

The CDS-PP party, meanwhile, agreed to negotiate a solution and said its other two remaining ministers would not resign for the time being.

EU leaders are urging Portuguese politicians to come to a solution quickly before the crisis leads to financial insecurity.

"The political situation should be clarified as soon as possible," European Commission President Jose Manuel Barroso of Portugal said Wednesday.

dr,rc/hc (AFP, Reuters, AP)