Portugal PM says found formula for government stability

Thu Jul 4, 2013 3:01pm EDT
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By Shrikesh Laxmidas and Axel Bugge

LISBON (Reuters) - Portugal's prime minister has found a way to maintain government stability with the junior partner in the ruling coalition, but the full details still need to be agreed to end a political crisis that has threatened Lisbon's adjustment under a bailout.

Prime Minister Pedro Passos Coelho said a formula had been found after meeting with the leader of the rightist CDS-PP party three times in the past 24 hours to heal the most damaging political rift since the country received a bailout in 2011.

"A formula was found to maintain government stability," Passos Coelho told journalists after a crisis meeting with the president to discuss the political situation.

The resignations this week of finance minister Vitor Gaspar and foreign minister Paulo Portas, who also heads the CDS-PP, have threatened to deprive the government of a majority in parliament as the country goes through its deepest slump since the 1970s.

Passos Coelho said the solution would involve a "way to guarantee the political support of the CDS-PP of the government," adding that the resignation of Portas had been a personal decision.

Still, the prime minister gave no details of the agreement and the final outcome still depends on further negotiations with Portas in coming days. It is likely to include more ministerial positions for the CDS-PP, analysts said.

Any final agreement will also have to be approved by President Anibal Cavaco Silva, who will meet with all political parties starting on Monday.

Portuguese assets were highly volatile on the day but by the afternoon bond yields fell and stocks recovered most of their sharp losses from a day earlier as agreement appeared closer.   Continued...

Communist Party members march during a protest calling for a government resignation in Lisbon July 3, 2013. REUTERS/Jose Manuel Ribeiro