Portugal's economy in crisis as two ministers resign from coalition government

The junior People's Party prompts political and economic crisis over austerity split

The resignation of two key ministers in Portugal’s coalition government drove the country to the edge of an economic and political crisis yesterday, prompting its president to hold crisis talks.

Stocks in Lisbon plummeted 5.2 per cent and the cost of borrowing rose dramatically after Paulo Portas, the leader of the coalition’s junior People’s Party, resigned over the appointment of a new pro-austerity finance minister. He follows Finance Minister Vitor Gaspar, who quit on Monday.

The split over the country's economic policy, which also saw the interest rates on Portugal’s ten year bonds jump to nearly eight per cent, had knock-on effects for the eurozone.

Italian and Spanish debt was rapidly sold off and the FTSE 100 index fell 1.2 per cent, costing shareholders a collective £19bn. The Portuguese stock market, PS120, which has been slowly recovering from the 2011 crisis, fell by more than five per cent.

The markets were slowly rebounding this morning, with the FTSE 100 rising 0.9 per cent after investors signalled for the European Central Bank (ECB) to settle concerns left over from yesterday's turmoil.

"I am expecting some healing words from [ECB President Mario] Draghi, which should calm fears over the situations in Portugal and Greece because it is a very psychologically driven market," Rolf Bland, chief investment officer at VZ Vermogenszentrum in Zurich, said.

"I don't think any new stimulus measures will be on the table, but it is a question of words and making clear once again that everything will be done [to save the euro] and interest rates and policy will remain accommodative, which will be very helpful at this moment."

In an attempt to stay the impending collapse, President Anibal Cavaco Silva met with party leaders for emergency talks, after which the People’s Party reassured Europe there would be no further high profile resignations.

Speaking in Berlin, Prime Minsiter Pedro Passos Coelho added: “I am confident that we will be able to surpass this difficulty. I hope this internal crisis can be overcome very quickly.”

Earlier, the People's Party, which holds 24 seats in Portugal’s 230-seat parliament and therefore secures the government majority, met to decide whether it would continue to support the coalition.

According to local media reports, the smaller party had not taken a final decision last night, but were prepared to 'renegotiate' their relationship with the Social Democratic party, which holds 108 seats. The two groups are expected to hold meetings today.

"The Portuguese government is on the rocks," Raoul Ruparel, head of economic research at Open Europe, told The Daily Telegraph. "Although Portugal has financing in place until the end of the year, it is still subject to stringent reviews. This suggests political turmoil could cause serious problems when it comes to releasing this financing which Portugal desperately needs over the summer."

Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
footballShirt then goes on sale on Gumtree
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Guru Careers: Software Developer

£35 - 40k + Benefits: Guru Careers: We are seeking a Software Developer (JavaS...

SThree: Trainee Recruitment Consultant / Resourcer

£18000 - £23000 per annum + Commission: SThree: As a Trainee Recruitment Consu...

Ashdown Group: UI Developer - (UI, HTML, CSS, JavaScript, AngularJS)

£25000 - £40000 per annum: Ashdown Group: UI Developer - (UI, JavaScript, HTML...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine