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Portugal President Urges Quick Party Accord as Bond Yields Rise

July 12, 2013

Portuguese President Anibal Cavaco Silva

Portuguese President Anibal Cavaco Silva addresses the nation from the presidential palace in Lisbon on June 10, 2013. Photographer: Francisco Leong/AFP via Getty Images

President Anibal Cavaco Silva said he wants Portugal’s two ruling parties and main opposition group to quickly reach an agreement of “national salvation” and implement a bailout program as the nation’s bond yields surge.

“Talks between the political parties should be concluded in a very short period of time,” the president’s office said in a statement on its website. Silva met with the party leaders yesterday to explain the terms of such an agreement and all showed willingness to start discussions as soon as possible, according to the statement.

Silva on July 10 called on Prime Minister Pedro Passos Coelho’s Social Democrats and its smaller conservative CDS party ally, along with the main opposition Socialist Party, to reach an agreement that will allow Portugal to complete its aid program through June 2014, set early elections to take place after that date and ensure that debt will be sustainable with a new government after the bailout.

While ruling out early elections right away, Silva hasn’t endorsed a new coalition agreement between Coelho and CDS leader Paulo Portas, and opted to make the call for a broader pact that would also involve the Socialists. The two parties in government last week had settled a split over budget policy with Coelho offering Foreign Minister Portas the post of vice premier and control over economic policy.

“The longer the current political uncertainty lasts, the higher Portuguese bond yields could go, making market access more difficult,” Ricardo Santos, an economist at BNP Paribas SA in London, said in a note today.

Yields Jump

The country’s 10-year (GSPT10YR) bond yield jumped 67 basis points to 7.57 percent at 4:39 p.m. in London. The yield jumped to a seven-month high of more than 8 percent last week after the rift in the coalition emerged. The country pays 3.2 percent on its bailout loans.

Portuguese debt agency IGCP today said it plans to resume “regular issuance” of bonds “only if market conditions are conducive.” Financing needs for 2013 are “fully covered” and in the second quarter the debt agency started to “pre-fund” for borrowing needs in 2014, IGCP said in an e-mailed statement.

The eighth and ninth review of Portugal’s progress on meeting terms of the 78 billion-euro ($102 billion) aid program will now both take place at the end of August or beginning of September due to the “political situation,” the Finance Ministry said yesterday. The ministry said last month the eighth review was due to start on July 15.

Parties’ Agreement

“We are totally committed to finding an agreement with substance,” Coelho said in parliament today. “We don’t need to cancel the political differences between the coalition that supports the government and the Socialist Party. Those differences persist and they are natural and healthy in democracy.”

“The Socialist Party is available to start a dialogue with all the political parties,” party leader Antonio Jose Seguro told parliament today. The Socialists have ruled out the possibility of supporting or taking part in any government resulting from the current distribution of seats in the assembly and Seguro reaffirmed calls for renegotiating aid package terms.

The Socialists have voted alongside the governing coalition on certain key policy decisions including the European Stability Mechanism treaty, the fiscal compact and the country’s budget framework law. The party led Coelho’s Social Democrats by 12 percentage points in a poll published today and has called for early elections.

Dissolve Parliament

Silva, who has the power to dissolve parliament, said on July 10 that “the start of the process that leads to elections should coincide with the end of the financial aid program” in June 2014. The Social Democrats and the conservative CDS party now have a majority in parliament and the government’s term ends in 2015.

“This dialogue can and must start,” CDS leader Portas said today in parliament about talks between the three parties.

Portas handed in his resignation as foreign minister last week. Coelho, who leads the Social Democrats, had seen Finance Minister Vitor Gaspar quit the day before and refused to accept Portas’s resignation, citing his role as leader of a coalition party.

While not involved in daily government business, Portugal’s president is more than just a ceremonial figure. In addition to dissolving parliament, the head of state is directly elected and can veto laws.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net


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