* Socialists insisted on ending austerity
* Country's risk premium seen rising as crisis worsens
* Ruling coalition still may survive, analysts say
By Andrei Khalip and Daniel Alvarenga
LISBON, July 19 Portugal's main political
parties broke off talks on Friday on a "national salvation" pact
to ensure an EU/IMF bailout stays on track, leaving it to the
president to decide how to proceed.
Political turmoil has already forced Lisbon to request a
delay in the eighth review of the bailout by its creditors,
which was initially due to start last Monday, until the end of
August or early September.
The 78-billion-euro ($102.5-billion) bailout programme and
attached austerity policies are associated with the worst
recession in Portugal since the 1970s.
The leader of the main opposition Socialists, Antonio Jose
Seguro, said the ruling coalition had rejected most of his
party's proposals aimed to renegotiate the terms of the bailout.
The crisis, which started as an internal political rift in
the ruling coalition and expanded to a debate over the bailout
plan, has threatened to derail Portugal's planned exit from the
bailout and full return to debt markets in mid-2014.
The government says abandoning austerity would undermine
Lisbon's credibility with lenders and investors.
"There were two different visions to exit the crisis. That
being clear, it made no sense to continue negotiating for the
sake of negotiating," Seguro told reporters after meeting
President Anibal Cavaco Silva.
Seguro said whether to go ahead with 4.7 billion euros'
worth of government-proposed budget cuts had been a major
"Many of you ask yourselves, and now what? It is up to the
president to decide," Seguro said.
Analysts say the situation is very uncertain but the
president could still avoid an escalation of the crisis by
keeping the ruling coalition in place rather than using his
power to dissolve parliament and call a snap election.
The rift in the coalition broke out in early July with two
senior ministerial resignations.
It was followed by a U-turn that appeared to have healed the
split, only to be shot down by the president who rejected a
proposed cabinet reshuffle and called for a deal of "national
salvation" to back the bailout policies and hold an early
election after the end of the programme in mid-2014.
"I find it very hard to believe that the president will go
for a snap election now after he said so much last week about
the danger of such a move," said Marina Costa Lobo, political
scientist at the University of Lisbon.
"What could be on the table is a government reshuffle,
possibly different from the one proposed by the premier, or a
government picked by the president," she said.
The yield on Portugal's benchmark 10-year bonds has fallen
in the past few days to settle at 6.86 percent on Friday on
optimism that the parties would strike a deal. They had reached
nearly 8 percent last week when the president announced his
"Markets have given us a truce this week expecting a deal,
gave Portugal the benefit of the doubt and this will be a big
disappointment... the risk premium is poised to rise," said
Filipe Garcia, head of Informacao de Mercados Financeiros
consultants in Porto.
Antonio Saraiva, the head of the Portuguese Industry
Confederation, which jointly with other business groups and the
UGT labour union called for a political compromise earlier this
week, said he did not see an early election as a good solution.
"It's not safe to say that a more stable parliamentary
setting will come out of that," he said.
The government easily defeated a no-confidence motion in
parliament on Thursday, which it then said confirmed its
legitimacy to govern. Government officials were not available
to comment on Friday night.
A poll by Aximage pollsters released earlier on Friday
showed that 53 percent of more than 600 people surveyed last
week preferred that the president keep Passos Coelho as prime
minister, while calling an early election now was supported by a
much lower 25 percent.