Portuguese PM makes coalition partner his deputy, to end crisis

Reuters News
Posted: Jul 06, 2013 4:27 PM
Portuguese PM makes coalition partner his deputy, to end crisis

By Axel Bugge

LISBON (Reuters) - Portugal's prime minister promoted the head of the junior coalition party to be his deputy on Saturday, hoping to end a political rift that threatened to bring down the government and endanger the country's bailout.

The promotion of Paulo Portas, head of the rightist CDS-PP party, came after he resigned as foreign minister, raising fears his party would quit the coalition and rob it of its majority in parliament.

"We have reached a solid and far reaching agreement," Prime Minister Pedro Passos Coelho told a news conference after his center-right Social Democrats met with CDS-PP leaders. "This agreement will guarantee political stability until the end of our mandate."

In another major concession, the prime minister gave Portas the role of co-ordinating negotiations with the 'troika' of lenders to the bailout - the European Union, European Central Bank and IMF.

His CDS-PP party will also gain the position of economy minister, which will be held by Antonio Pires de Lima, a friend of Portas.

The agreement still has to be approved by President Anibal Cavaco Silva, who will meet all political parties to discuss the crisis on Monday and Tuesday. Opposition leftist parties have demanded elections.

Portas has periodically been a strong critic of austerity policies under the 78 billion-euro ($100 billion) bailout as Portugal languished in three years of recession.

He resigned after Passos Coelho appointed a finance minister that Portas believed would continue on the austerity drive which, critics say, has exacerbated Portugal's biggest economic slump since the 1970s.

The prime minister said the agreement with his coalition partner would mark the start of a new phase of the bailout, with a greater focus on economic growth and a push to reduce unemployment, which is at record highs near 18 percent.

"We are looking ahead with determination to finish the (bailout) adjustment," Passos Coelho said. "We want to end the adjustment within the scheduled time, without drama."

Lisbon has sought relaxation of tough budget goals at least twice since it got the bailout in 2011 and Passos Coelho has said Lisbon could request further easing of goals if the economy fails to deliver growth.

Ratings agency Standard & Poor's revised down Lisbon's sovereign credit outlook on Friday, to negative from stable, citing the impact of political uncertainty. Its BB rating for Portugal is in junk territory.

(Editing by Robin Pomeroy)