Portuguese President’s Political Intervention Useless

The president finally accepts a cabinet reshuffle that could have ended the crisis two weeks ago.

Portuguese president Aníbal Cavaco Silva’s attempt to form a national salvation government predictably failed when the opposition Socialists refused to do a deal with the ruling conservative and liberal parties.

Three weeks after the finance minister’s resignation prompted a coalition crisis, Cavaco Silva was forced to accept a cabinet reshuffle that Prime Minister Pedro Passos Coelho had proposed in the first place to placate the concerns of his junior ruling party — begging the question why the president didn’t agree to the deal in the first place?

Vítor Gaspar, who was seen as the architect of Portugal’s austerity program, resigned early this month, saying that his credibility had been undermined by disappointing budget forecasts and the overturning of some of his proposed reforms by the Constitutional Court. Two months earlier, the judges had 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.

The crisis deepened when the conservative party leader, Paulo Portas, resigned as foreign minister, objecting to the promotion of Gaspar’s deputy Maria Luís Albuquerque who was expected to continue the very economic and fiscal policies that had become so unpopular. Portas’ party commands 10 percent of the seats in parliament. Without it, the ruling liberals would lose their majority.

Passos Coelho refused to accept Portas’ resignation and offered him the deputy prime ministership instead with the responsibility for managing talks with Portugal’s creditors. Portas accepted.

A crisis seemed averted until the president rejected the reshuffle and called for a broad political agreement, including the opposition Socialists, to set out a program for the economic adjustments that are necessary under the country’s European bailout. To lure the Socialists, who lead in opinion polls, he suggested early elections could be called next year when Portugal is supposed to exit the bailout.

The Socialists, however, reject austerity altogether and wouldn’t become complicit in carrying out reforms when criticizing them has so improved their poll numbers. The coalition, on the other hand, wouldn’t water down policies and risk losing European aid which is tied to strict conditions for deficit reduction and economic reform.

The political turmoil forced Portugal to request a delay in the eighth review of its bailout program which was due to start last week.

After crossparty talks collapsed, the president belatedly approved Portas’ promotion and the continuation of the coalition. Had he done so two weeks ago, much uncertainly would have been avoided.

In March, Portugal’s European lenders gave it one more year to reduce its shortfall to under 3 percent of economic output, the treaty limit. The country’s economy is expected to contract another 2.3 percent this year, however, complicating the fiscal consolidation effort, while unemployment, which hit a record 16.9 percent in 2012, might climb to 18.2 percent.