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Portugal - European Union

EU summit in disarray after Portugal PM resigns

EU leaders gathered on Thursday for a meeting in Brussels to discuss the Eurozone debt crisis, one day after Portugal's PM Jose Socrates resigned. On Wednesday, Portugal’s parliament rejected Socrates’s austerity plan aimed at avoiding an EU bailout like those given to Greece or Ireland.

Reuters
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On Wednesday, all five opposition parties voted against Socrates's cost-cutting plan, saying the fourth package of austerity plans in a year went too far.

The prime minister resigned after the vote, saying the opposition had removed the government’s power to govern, and warned that the crisis would have very serious consequences on Portugal’s institutions and financial markets.

His resignation is expected to trigger a bailout from the European Union.

The political crisis is expected to increase borrowing costs for the Portuguese government, increases its debt levels. Pressure is intense on Portugal to seek a bailout package that could reach 50 billion euros.

European leaders are expected to meet Thursday afternoon, with political turmoil in Portugal and air strikes in Libya likely to top the agenda.

German Chancellor Angela Merkel said Thursday she regretted that parliament had rejected Socrates' austerity plan, describing it as "correct and courageous."

Portugal’s public deficit hit a record 9.3 per cent of GDP in 2009, the fourth biggest in the euro region after Ireland, Greece and Spain. Socrates’s austerity plan involved increasing taxes and reducing spending to rein in the country’s public deficit.

The Portuguese president will hold meetings with all political parties on Friday and the government will retain full powers at least until then, the president's office said in a statement.

Possible scenarios after Portugal premier’s resignation

Portugal’s centre-right President Anibal Cavaco Silva will hold meetings with all political parties on Friday to seek a way out of the political deadlock.

  • Socialists invited to name new PM

The president could ask Socrates's party, the Socialist Party, to name a new prime minister. The Socialists hold 97 seats in the 230-seat assembly so it is unlikely that move would bring stability to the Portuguese government.

  • All-party coalition government

The president could invite all parties represented in parliament to form a coalition government. This solution is unlikely to succeed.

  • Early elections

The president could dissolve parliament and call for early elections. This is seen as the most likely scenario and has already been backed by the Socialist Party and the main centre-right Social Democratic Party (PSD). Early elections could be held as soon as end May.

 

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