Portuguese political crisis threatens Euro recovery

A political crisis in Portugal threatens to plunge the euro back into crisis just as experts were cautiously predicting that EU economies would start growing again next year.

ECB member Jorg Asmussen warned that the economic situation remains fragile, and that governments need to stick to their commitments, cutting back budgets.

He and finance ministers meeting in Nicosia praised Ireland and Portugal, describing them as success stories while IMF head Christine Lagarde said they proved implementing their tough programmes worked.

But even as they noted markets had responded well to recent developments, including in Ireland, the Portuguese President Anibal Cavaco Silva called a state council meeting for next Friday in Lisbon to discuss the government’s future.

Huge demonstrations are being planned through the country for the weekend with workers adopting the motto: “Screw the Troika. We want our lives back.” The country got a €78bn bailout last year.

Political and social consensus has been considered essential to the success of the harsh bailout programmes in both Ireland and Portugal.

But now the draft budget for next year just announced by the Portuguese government has created mayhem in the coalition centre-right government parties while the opposition Socialists have said they are withdrawing their support.

The government plans to increase social security contributions from 11% to 18% of gross salaries, and to lower the contributions from companies. This would amount to the loss of a month’s salary for every worker.

The main opposition Socialists said they will vote against the budget while Prime Minister Pedro Passos Coelho’s is also facing opposition within his own party, and his smaller coalition partner, the CDS-PP.

Even the head of the industry confederation came out against the increases.