Roundup: Portugal faces daunting task for quick economic recovery after political crisis

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Portugal is facing a daunting task for a quick economic recovery following the resignation of two senior ministers last week.

Finance Minister Vitor Gaspar, who has been widely criticized for the deep austerity that has hurt the country's economy for the past few years, stepped down last Monday, followed by the quitting of Foreign Minister Paulo Portas within less than 24 hours.

Prime Minister Pedro Passos Coelho announced at a press conference Saturday night that his Socialist Democratic Party (PSD) and the junior People's Party (CDS-PP) in the governing coalition have reached a deal that the two parties will continue to govern to ensure the nation's political stability.

He also appointed Portas, leader of the conservative CDS-PP, as deputy prime minister to be responsible for the economy and deal with the country's relationship with the troika of the European Commission, the International Monetary Fund and the European Central Bank.

The one-week political turmoil in the country has come to an end.

Portugal's political crisis has stemmed from the implementation of the tough austerity measures after the coalition government took power in June 2011.

The government has been struggling with the deepening economic recession in the past two years, trying hard to meet the fiscal targets required under its 78-billion-euro (100.6-billion-U.S.-dollar) bailout agreement with the troika.

But austerity measures including drastic taxes hike, public spending cuts and layoffs of civil servants have sparked outrages among the Portuguese people, who took to the streets and staged strikes frequently, and also strained the relations between the government and opposition parties.

Under mounting pressure, Gaspar was forced to step down as the government repeatedly failed to meet the troika's deficit reduction targets and his rating had been dropping steadily. Fearing that Gaspar's successor, former state secretary of treasury Maria Albuquerque, will follow his austerity policies, Portas also resigned.

If the CDS-PP pulled out of the governing coalition, the PSD led by Passos Coelho will be deprived of a majority in the parliament, and President Anibal Cavaco Silva will have to dismiss the parliament and call a snap election, which the opposition Socialist Party is seeking.

Thanks to the agreement reached between the two governing parties, the political crisis has been defused.

However, it is a big blow to investors' confidence in Portugal's financial markets. They were gravely concerned with whether Portugal will exit from the bailout program with the troika in June 2014 as scheduled.

The Standard & Poor's on Friday downgraded Portugal's sovereign credit outlook from "stable" to "negative."

Portugal's stocks tumbled sharply on Wednesday with the benchmark index PSI-20 dropping 5.3 percent at 5,236.49 points, the biggest slump since April 2010, while the interests for the 10-year bond rose over the dangerous threshold of 8 percent.

However, the stocks bounced back sharply and the gains for the bond dipped to 7.4 percent on Thursday at the news that the government had reached a deal with its coalition partner to avert the breakup of their alliance.

Analysts say that although the political crisis is over, its root cause is hard to be eliminated.

Passos Coelho will reshuffle the cabinet in the next few days to let in more members of the CDS-PP and give the junior party more say in the decision-making.

The government is expected to make adjustment to its harsh austerity measures in order to ease tensions between the government and the people and to stifle the opposition to its current policies.

It is believed that a stable government and a comparatively relaxed economic policy is conducive for different sectors of Portugal to be cohesive, which in return helps the country return to the international financial markets and get out of the economic crisis at an earliest possible date.

However, with the high unemployment of 18 percent hampering its quick recovery, the government after reshuffle will encounter more challenges ahead. Endi

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