Portuguese bond and stock markets tumble amid political crisis | Business| Economy and finance news from a German perspective | DW | 03.07.2013
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Portuguese bond and stock markets tumble amid political crisis

Portugal's financial markets have taken a dive as the government sits on the brink of collapse. Prime Minister Pedro Passos Coelho has defied calls for his resignation after key ministers stepped down.

The interest rate on Portugal's 10-year bond reached 7.39 percent on Wednesday, up from 5.23 percent in May. The borrowing rate is of great significance to Portugal, a country that has struggled with stringent austerity cuts in order to recover from its bailout program so they can borrow normally on capital markets next year.

The surge in interest rates came after Prime Minister Coelho late Tuesday refused to accept the resignation of his foreign minister, Paulo Portas, who heads the junior party CDS-PP in the prime minister's center-right coalition. Portas' decision came a day after Finance Minister Vitor Gaspar, the architect of Portugal's tough austerity measures, stepped down..

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Portugese say no to more austerity

Multiple Portuguese newspaper, radio and TV reports said Wednesday that two more CDS-PP ministers – Agriculture Minister Assuncao Cristas and Social Security Minister Pedro Mota Saores – were also ready to resign.

In another indicator of investor confidence, Portugal's main PSI 20 stock index also slumped 6.4 percent to 5,177 in late morning trading Wednesday.

Government in limbo

Investors are worried the country's political crisis could undermine reforms imposed by the International Monetary Fund and European Union in order to receive bailout money.

Prime Minister Coelho, who has rejected the idea of resigning, could pull the rightist CDS-PP out of the country's ruling coalition, but then the government would lose its majority. President Anibal Cavaco Silva is expected to promote the idea of a grand coalition government, though it remains to be seen if the largest opposition party, the moderate center-left Socialists, would participate.

Polls indicate the Socialists would win a snap election. However, they would still need the help of CDS-PP to form a majority coalition because the two remaining parties in parliament, the Communists and Left Bloc, have never formed a coalition and analysts say it's unlikely they would.

dr/hc (Reuters, AP, AFP)

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