Portugal political crisis a catalogue of missteps

LISBON Wed Jul 24, 2013 6:11am EDT

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LISBON (Reuters) - Portugal's political crisis may have been papered over but the ill-timed power games have done little to help the bailed-out country's credibility abroad.

Featuring several U-turns, including an "irrevocable" resignation by a junior governing coalition partner which ultimately led to his promotion, the crisis wasted a precious three weeks and left its protagonists weakened and facing the same heap of economic problems to solve as before.

The economy is still in its worst recession since the 1970s, deepened by austerity terms attached to its EU/IMF rescue loans, and Lisbon still has to cut its fiscal deficit to ensure funds keep flowing.

"Sadly, the crisis leaves Portuguese politics facing certain third-worldish disdain from abroad," said Adelino Maltez, a political scientist in Lisbon. "Even our president said it's an unpredictable country, investors see it too and hardly like it."

The president, Anibal Cavaco Silva, showed his own lack of predictability by rejecting a government-proposed solution to an internal rift. He then went on a two-day bird-watching trip to the remote Savage Islands in the middle of the Atlantic.

His intention was to leave the main parties alone to negotiate a "national salvation" pact he had requested but he then made comments about the crisis to an army of reporters who accompanied him. Ultimately, it also left the 74-year-old president looking out of touch.

"It was a calm night and there have been no unpleasant news from Lisbon," he said on Friday morning, just hours before the opposition Socialists broke off talks with the two parties of the ruling coalition and said no deal was possible.

The Socialists' proposals showed they simply wanted to end all austerity, which would have defeated the purpose of an agreement.

Cavaco Silva wanted a cross-party pact to support the EU/IMF bailout, which requires the continuation of debt-cutting policies until the bailout program is due to end in mid-2014, although a return to market funding is now in doubt.

Analysts say there is no choice but to stay the general austerity course, begging the question as to why this political crisis flare in the first place.

RESIGNATION THAT WASN'T

The last three weeks has featured a catalogue of self-inflicted wounds by Portugal's ruling class.

The crisis began on July 1 with the resignation of Finance Minister Vitor Gaspar - the architect of the austerity drive - who cited waning support for his strategy. One newspaper, "i", said in a widely quoted report that the last straw for Gaspar had been an angry customer in a supermarket spitting at him and his wife.

The next day, the crisis spiraled when Paulo Portas, the leader of the rightist CDS-PP junior coalition party that guaranteed the centre-right government's parliament majority, resigned as foreign minister.

He said he objected to the promotion of Gaspar's close colleague Maria Luis Albuquerque to finance minister. His "irrevocable" resignation came just minutes before Albuquerque's swearing-in ceremony, which nevertheless went ahead - without any of the three CDS-PP ministers present.

Prime Minister Pedro Passos Coelho refused to accept Portas' resignation, the two patched up their differences and agreed to preserve the coalition on the condition that Portas became deputy prime minister managing talks with the lenders.

Albuquerque, whose appointment was hailed by Brussels as a sign of continuity, remained finance minister, although now outranked by Portas.

Most of Portas' party top brass had been caught unawares by his resignation and some openly criticized the move, leading to rumors of his replacement as party leader.

"The key problem is the hypocrisy of our politics - there is no liberal right, while the so-called right is happy to defend the welfare state to get votes," Maltez said, adding that all the main leaders showed they have little control over their parties.

FOOD FOR SATIRE

With the crisis seemingly solved and Portugal's risk premiums falling back after a big jump, the president dropped his bombshell, rejecting the coalition's solution and calling for the broad political deal.

To lure the Socialists, who lead in opinion polls, he promised them an early election in 2014 if such a deal was sealed.

The events provided plenty of food for satire, which spared none of the political figures, while commentators called the situation a bad soap opera or a theatre of the absurd.

"The country deserved another political class, more adult, less given to spats and ready to put Portugal's interests above their own," business daily Diario Economico said in a recent editorial.

With the Socialists effectively demanding the bailout agreement be ripped up, no agreement was possible after six days of talks with many analysts blaming leader Antonio Jose Seguro for buckling to pressure from within his party.

The president belatedly approved the promotion of Portas and the continuation of the existing coalition.

Nicholas Spiro, managing director at Spiro Sovereign Strategy in London said the president's intervention had only exacerbated divisions between the government and the opposition.

"The politics of economic reform in Portugal have become even more treacherous," he said, warning that political support for the reforms demanded by the lenders has eroded sharply.

(Corrects 23rd paragraph to make clear Seguro is Socialist leader, not president)

(Editing by Mike Peacock)

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