Portuguese Party Leaders Seen Close to Deal to Continue Coalition

The Christian Democrats may yet stay in coalition with Prime Minister Pedro Passos Coelho’s liberal conservatives.

After three meetings with Prime Minister Pedro Passos Coelho in Lisbon on Thursday, Portugal’s conservative party leader reportedly agreed to continue to support the government although it may yet pull out of the coalition.

Rádio Renascença reported that Passos Coelho had reached an understanding with Paulo Portas who resigned as foreign minister on Thursday. The details of the agreement remained unknown.

If Portas’ Christian Democrats, who have 10 percent of the seats in parliament, withdraw their support, the prime minister’s liberal conservatives would be eight seats short of a majority.

Passos Coelho refused to accept Portas’ resignation who he may yet resume his duties or assume another cabinet post as his party is wary of calling early elections. Polls show the opposition Socialists in the lead.

A political crisis was triggered on Monday when Vítor Gaspar, the finance minister, resigned. An advocate of Portugal’s fiscal consolidation efforts, he argued that his credibility had been undermined by disappointing budget forecasts and the Constitutional Court overturning some of his reforms.

The judges in April struck down pension and public-sector compensation cuts as well as planned reductions in unemployment benefits which should have achieved some €1 billion in deficit reduction.

In March, Portugal was given one more year to meet its fiscal targets by its international creditors who pledged €78 billion in financial support in early 2011 to keep the nation, the poorest in Western Europe, afloat. Under their most optimistic scenario, Portugal’s debt would peak at 124 percent of gross domestic product next year.