Portuguese Prime Minister José Sócrates resigned on the eve of a key European Union summit on the eurozone debt crisis after Parliament rejected his new austerity plan, increasing Lisbon’s chances of seeking a bailout.
All five opposition parties voted on Wednesday against his Socialist government’s fourth cost-cutting plan in a year aimed at avoiding a multibillion euro financial bailout like those given to Greece and Ireland.
The political drama threatened to derail a two-day summit that gets under way in Brussels on Thursday, which expected to finalise the bloc’s response to a year-long eurozone debt crisis.
It also will increase borrowing costs for the Portuguese government as it faces bond repayments amounting to €9-billion falling due by June 15, boosting the probability that Lisbon will seek a bailout.
“The opposition removed from the government the conditions to govern. As a result I have presented my resignation to the president,” Sócrates said after a 20-minute meeting with President Anibal Cavaco Silva.
“This crisis will have very serious consequences in terms of the confidence Portugal needs to enjoy with institutions and financial markets.”
Eurozone debt crisis
The euro fell sharply against the dollar on Wednesday due to market fears that events in Portugal would undercut the EU summit and stoke the year-long eurozone debt crisis.
“Portugal’s precarious financial situation means that a political crisis could not come at a worse time,” said Kathleen Brooks at Forex.com. “Portugal will be pushed even closer to a bailout, something it has just about managed to avoid. But while a bailout of Portugal by itself wouldn’t be enough to spook the markets, it could derail the EU summit.”
Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of eurozone finance ministers, said it was up to Portugal to request financial aid, but if it does it will be granted “under strict conditions”.
His comments were taken to mean that tough austerity measures would be demanded of Lisbon in exchange for any aid.
The government had argued that the new belt-tightening plan would “guarantee” that Portugal’s public deficit would fall to below an EU limit of 3% of gross domestic product by 2013.
Portugal’s public deficit hit a record 9,3% of GDP in 2009, the fourth-biggest in the euro region after Ireland, Greece and Spain.
The main opposition centre-right Social Democratic Party (PSD) had allowed past austerity plans to pass by abstaining from voting.
But this time around it opposed the measures, arguing that they hurt the weakest members of society hardest.
PSD leader Pedro Passos Coelho has said early elections have become “inevitable” and were needed so a new government can regain market trust.
Retaining full powers
Sócrates became prime minister in 2005 and his Socialist Party won re-election in 2009 but lost its majority in Parliament. The socialists can count on the support of only 97 members in the 230-seat Parliament.
The prime minister had warned that he would resign if Parliament did not back his government’s latest austerity measures and would stand for re-election if there are early elections.
The president will meet with representatives of Portugal’s political parties on Friday and the government will retain full powers until then, his office said in a statement.
That leaves Sócrates’s government intact during the EU summit.
The president can now invite parties with representation in Parliament to form a coalition government or ask the Socialist Party to nominate a new prime minister.
In the more likely scenario, he can dissolve Parliament and call snap elections.
If the president calls fresh elections, the vote must be held at least 55 days after they are called.
That would leave the Socialists at the helm as a caretaker government with limited powers. — AFP