Portugal’s Passos Coelho Clings to Power After Ministers Resign

The conservative prime minister is confident he can stave off early elections.

Portugal’s prime minister, Pedro Passos Coelho, has said he is “confident” he can stay in power despite the resignation of two of his ministers and the possible withdrawal of a party from his ruling coalition.

“I hope this internal crisis can be overcome very quickly,” Passos Coelho told reporters in Germany’s capital, Berlin, where he was attending a summit about youth unemployment.

Coalition partners

The conservative premier’s political survival hinges on his junior coalition partners who, after hours of talks earlier in the day, hadn’t decided yet whether or not to continue to support him.

The smaller party’s leader, Paulo Portas, tendered his resignation as foreign minister on Tuesday. Passos Coelho has refused to accept it.

Portas’ Christian Democrats, who have 10 percent of the seats in parliament, formed a coalition with Passos Coelho’s liberal conservatives in June 2011, when the latter fell eight seats short of an outright majority in parliamentary elections.

Gaspar’s resignation

A political crisis was triggered by the resignation of Finance Minister Vítor Gaspar on Monday.

An advocate of fiscal consolidation, Gaspar argued that his credibility had been undermined by disappointing budget forecasts and the Constitutional Court overturning some of his reforms.

In April, justices struck down pension and public-sector compensation cuts as well as planned reductions in unemployment benefits. The combined measures were meant to achieve around €1 billion in deficit reduction.

Deficit rising

Portugal’s deficit fell from nearly 10 percent of gross domestic product in 2010, when its economy contracted 3 percent, to 6.4 percent last year.

In the first three months of this year, however, the shortfall rose again to 7.1 percent.

Western Europe’s poorest economy was given one more year to meet its fiscal targets by its EU creditors and the International Monetary Fund in March.

In early 2011, the bodies gave Portugal €78 billion in financial support. It was the third country in Europe after Greece and Ireland to require a bailout.

Under the creditors’ most optimistic scenario, Portugal’s debt would peak at 124 percent of GDP next year.

In 2009, when the crisis began, it stood at 70 percent of economic output.

Socialists up in polls

Passos Coelho hopes to stave off early elections, which could see the Socialists return to power. They had a 12-point lead over the ruling party in a recent survey.

Although the left initially backed economic and fiscal reforms, it has become increasingly critical of austerity as popular resistance mounted.

It is unclear if the Socialists would stick with the reform program if they are elected, which could jeopardize Portugal’s international financial support.