Portugal ‘to do all it can’ to avoid bailout

PORTUGAL has vowed to “do all it can” to avert a bailout after Prime Minister Jose Socrates stepped down following a showdown with parliament over his minority government’s latest austerity plan.

Socrates, in power since 2005, tendered his resignation late on Wednesday, saying he could not govern without support after all five opposition parties voted against his fourth programme in a year of spending cuts and tax hikes.

The austerity plan was aimed at avoiding the need for an EU-IMF bailout to help Lisbon meet debt repayment obligations, a package similar to those granted fellow eurozone members Greece and Ireland last year.

“This crisis will have very serious consequences in terms of the confidence Portugal needs to enjoy with institutions and financial markets,” Socrates said after presenting his resignation to President Aníbal Cavaco Silva.

The events in Portugal threaten to derail the two- day EU summit in Brussels which had been expected to finalise the bloc’s response to a year-long eurozone debt crisis.

Diplomats virtually ruled out any EU decision on an emergency financial rescue for Portugal during the gathering but Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of eurozone finance ministers, said aid of €75bn would be “appropriate”.

Speaking in Lisbon, Portugal’s cabinet spokesman Pedro Silva Pereira said a bailout was not in the “national interest”. He said, Greece and Ireland are paying higher interest rates on their debt than before they received outside aid.

“The government will fight and continue to do all it can to avoid resorting to external aid,” he said.

Many analysts were not convinced that Portugal could avoid a bail-out.

The country will need to raise €28bn to meet debt repayments over the next three years and another €29bn to cover the budget deficit, said Christoph Weil, senior economist at Commerzbank in Frankfurt.

“I expect that Portugal will have to ask the EU for help in the next couple of weeks,” he said.

“Now what?” said the headline on the front page of business daily Diario Economico, summing up the national mood.

The president can now invite the political parties to form a coalition government or, in the more likely scenario, dissolve parliament and call snap elections.