Portugal: Prime Minister Jose Socrates resigns after parliament rejects austerity plan
March 28, 2011
On 23 March, Prime Minister Jose Socrates announced his resignation after the opposition decided to block the austerity measures proposed by the minority Socialist government. Following the announcement, Socrates added that an imminent IMF/EU bailout would require even more severe measures than those he had attempted to pass through parliament. The leader of the opposition Social Democratic Party (PSD, Partido Social Democrata), Pedro Passos Coelho, claimed that he did not back the austerity measures proposed by the governing Socialists because the government has not shown enough commitment in its pledges to reduce spending. Following Socrates' resignation, Standard & Poor's and Fitch decided to downgrade Portugal's credit ratings, with S&P warning it might downgrade the country's rating even further in the next days. Moreover, Portugal's 10-year bond yields reached 8.18% on 29 March a level at which the Finance Minister had already stated was unsustainable , leaving the door open for the next IMF/EU bailout. Meanwhile, Social Democrat President Anibal Cavaco Silva met all major political parties to discuss how this political vacuum might be filled. On 28 March, Cavaco Silva announced that all parties had agreed to pursue the fiscal targets set for the next three years as well as to support the call for early elections. Authorities have not yet announced an official election date but according to the local press, the next general election will likely be held on 5 June, with the PSD as the front-runner, albeit without majority. The government aims to reduce the country's fiscal deficit from the 8.6% of GDP tallied in 2010 to 4.6% of GDP by the end of 2011. For 2012 and 2013, the government seeks to narrow the shortfall to 3.0% and 2.0% of GDP, respectively. Consensus Forecast panellists are less upbeat than the government and see the fiscal deficit narrowing only to 5.4% of GDP this year and to 4.4% of GDP in 2012.