By John McDermott and Cardiff Garcia
The eurozone finds itself in another fine mess on Wednesday evening — and it can’t say it wasn’t warned.
Reuters reports on the demise of Portugal’s government:
Wednesday, March 23, 2011 5:02:03 PM RTRS – PORTUGAL PM SOCRATES SAYS SUBMITTED RESIGNATION TO PRESIDENT
Wednesday, March 23, 2011 5:06:35 PM RTRS – PORTUGAL PM SOCRATES SAYS CRISIS COMES AT WORST TIME AHEAD OF EU SUMMIT
Wednesday, March 23, 2011 5:08:24 PM RTRS – PORTUGAL PM SOCRATES SAYS GOVT WILL CONTINUE ITS DUTIES AS CARETAKER
Wednesday, March 23, 2011 5:07:47 PM RTRS – PORTUGAL PM SOCRATES SEES VERY GRAVE CONSEQUENCES FOR MARKET CONFIDENCE IN PORTUGAL
This after a more interesting — if inevitable — conclusion to a European budget debate than the one over in London. From the the FT:
Portugal’s prime minister was defeated on Wednesday night in a vote on austerity measures, that pushes the country towards early elections and an international financial bail-out.
All opposition parties voted for a resolution to reject the measures. Only the 97 Socialists in the 230-seat parliament voted in favour.
José Sócrates, Portugal’s Prime Minister, is said to still be attending Thursday’s “grand bargain” summit in Brussels.
But with his government on the brink of collapse it’s unclear how a bail-out could be imposed and ratified. Fresh elections must surely follow. We’re not (yet) experts in the Portugese constitutional law — but the FT has some interesting comment in its article:
Responsibility for addressing a political limbo would fall to Aníbal Cavaco Silva, Portugal’s conservative president. If the government falls, most constitutionalists expect him to call a general election two years ahead of schedule.
But the ballot could not legally be held for a minimum of two months and would probably not take place until mid-June at the earliest. The outgoing government would normally remain in office in a caretaker capacity, its powers limited.
Constitutional experts said this would not include powers to negotiate a fiscal consolidation plan with the EU – much less a Greek- or Irish-style bail-out.
Mr Cavaco Silva could call on political parties to form an interim coalition government or appoint a transitional non-party “technical government”. According to Mr Moec, a “technical cabinet” would be better placed to negotiate EFSF aid, but “the Irish experience would probably deter European partners from cutting a deal with a government without clear parliamentary backing”.
And with the spread on the Portugese ten-year already at 416 bps over the European sovereign benchmark we wonder whether rises on Thursday morning will lead to the raising of margin requirements, which effectively signaled the end of Irish resistance to a bail-out. Click to enlarge the chart below.
Here’s how the EUR reacted to the news:
Over to you, Brussels.
Related links:
Portugal coverage – FT Alphaville