Portugal government beats no-confidence vote, crisis talks go on

Reuters News
Posted: Jul 18, 2013 1:48 PM
Portugal government beats no-confidence vote, crisis talks go on

By Andrei Khalip and Shrikesh Laxmidas

LISBON (Reuters) - Portugal's center-right ruling coalition easily defeated a motion of no confidence in parliament on Thursday, demonstrating restored unity after an internal rift earlier this month set off a political crisis.

The crisis is far from over as emergency talks continue between the three main parties in an effort to reach a broad agreement to keep an EU/IMF bailout on track, but the vote at least removes one element of uncertainty.

During a visit to a remote Portuguese island, President Anibal Cavaco Silva - who requested the talks for a "national salvation" pact - said he was confident the parties could reach an agreement, despite complex negotiations.

The main opposition Socialists and the two smaller left-wing parties backed the motion, garnering just 87 votes in a 230-seat parliament. All the deputies present from the main ruling Social Democrats and their rightist partner CDS-PP voted against the motion, which had been tabled by the small Green party.

The Socialists and the two ruling coalition parties have given themselves until Sunday to conclude crisis talks requested by the president, who wants wide cross-party backing for the bailout until mid-2014 and then an early election.

"There is serious will and determined effort to achieve an understanding, although we cannot ignore that it is a complex, difficult negotiation," Cavaco Silva said. "The parties' attitude has been of utmost responsibility."

The center-left Socialists have said their vote on the motion is consistent with a similar stance in April and does not affect the talks. They acknowledged the motion played into the government's hands, with parliamentary leader Carlos Zorrinho calling it "an irrevocable favor to this failed government".

His opposite number from the main ruling Social Democrats, Luis Montenegro, said the rejection means that "the government naturally feels empowered by parliament to continue exercising its functions".

Prime Minister Pedro Passos Coelho defended his government's record by saying that the economy may have finally grown in the second quarter, in a tentative sign of rebound after deep recession caused by bailout austerity.

Analysts say a cross-party deal is possible, but will likely contain concessions to the Socialists on austerity, especially regarding plans to cut spending by 4.7 billion euros until the end of next year. Such concessions would also need to be approved by Lisbon's lenders.

"The 4.7 billion euros in cuts will have to continue, but possibly at a slower pace," said Teresa Gil Pinheiro, an economist at Banco BPI. "A medium-term deal ... could be positive for us and for the lenders. I think there's more flexibility in Europe now to accept some austerity easing."

Portugal's benchmark 10-year bond yield fell to its lowest levels in a week, to 7.03 percent from Wednesday's 7.277 percent, as investors hoped a solution would be found, allowing Portugal to exit the bailout as planned and avoid a new rescue plan.

Some, however, fear that a second bailout could involve losses for debt-holders, as happened in Greece.

(Additional reporting by Sergio Goncalves and Daniel Alvarenga, editing by Michael Roddy)