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Portugal foreign minister resigns in bailout row

Published on 02/07/2013

Portugal's foreign minister stepped down on Tuesday in a row over the country's bailout reforms, plunging the recession-wracked country into a political crisis a day after the finance minister also quit.

“I presented my resignation this morning,” Paulo Portas said in a statement. “My decision is irrevocable.”

Portas’ small conservative CDS-PP party is part of Prime Minister Pedro Passos Coelho’s ruling coalition.

The surprise move came a day after the shock resignation of Finance Minister Vitor Gaspar, the architect of the country’s reforms under its EU-IMF bailout, which has triggered calls for an early election.

In his resignation letter, Portas said he disapproved of the prime minister’s decision to replace Gaspar with Treasury Secretary Maria Luis Albuquerque, who has managed the country’s privatisation efforts.

Passos Coelho’s choice had been interpreted as a clear indication that he intended to continue on the path of fiscal discipline despite criticism from the opposition and rising social unrest.

“The prime minister has chosen to maintain its path at the finance ministry. I respect this choice but I disagree,” Portas said.

“I expressed this view to the prime minister who nevertheless confirmed his choice,” he said.

Portas said that as a result “remaining in the government would be an act of simulation. This would not be politically viable nor desirable.”

Portas has repeatedly expressed doubts about the validity of the government’s policy of austerity and warned he could bring the coalition down if a plan to raise taxes on pensioners is applied.

The government, which came to power in early elections in June 2011, is increasingly isolated, as shown by the fourth general strike organised last week by trade unions.

Business leaders are also highly critical, calling on the government to recognise the failure of the strategy of restoring Portugal’s international financial credibility at any price.

Gaspar, a one-time EU and ECB official, played the main role in applying the reform programme agreed in 2011 with the European Union and International Monetary Fund in exchange for bailout funding of 78 billion euros ($102 billion) over three years.

But in his letter of resignation, he acknowledged that “repeated slippages” in achieving targets “have undermined my credibility as finance minister.”

The drastic cuts in spending and tax rises which he has overseen have plunged the country into a deeper recession, and with higher unemployment, than had been expected.

At the end of March the budget deficit amounted to 10.6 percent of annual output. The target set by creditors, already relaxed twice, is for a deficit of 5.5 percent at the end of the year.

But the European Commission was quick to exhort the government to stick to reforms, saying that “a lot has been done to consolidate public finances.”

Passos Coelho’s government has just two weeks to come up with a programme to reform the state before auditors arrive on July 15 to examine progress on reforms for the IMF, EU and European Central Bank.

The prime minister had given Portas the task of completing by July 15 a reform of the state to save 4.7 billion euros by the end of 2014.

The task would have exposed Portas to the same political fire as has brought down the finance minister.

The government expects the economy to contract by 2.3 percent by the end of the year while the unemployment rate has soared to a record 18.2 percent.

Portugal has agreed with lenders to bring its deficit to 5.5 percent of output this year, four percent in 2014 and 2.5 percent in 2015, below the EU’s ceiling of 3.0 percent.