(Repeats without changes)
By Axel Bugge
LISBON, March 24 Portuguese Prime Minister Jose
Socrates resigned on Wednesday after parliament rejected his
government's latest austerity measures, designed to help
Portugal avoid having to seek an international bailout.
IS A BAILOUT INEVITABLE?
It looks likely. At around 7.8 percent, Portugal's 10-year
government bond yield PT10YT=TWEB is well above the 7 percent
level which many analysts think is unsustainable in the long
term. The five-year yield PT5YT=TWEB is even higher; similar
inversions in the yield curve were seen for Greece and Ireland
before they sought bailouts last year.
After the rejection of the austerity measures, Portuguese
yields could rise further unless a new government quickly comes
up with a fresh austerity package -- but forming a new
government could take many weeks.
Socrates and his Socialists firmly opposed a bailout, which
would carry tough fiscal conditions; Portugal has bad memories
of IMF-ordered austerity in the 1980s. But the main opposition
Social Democrats (PSD) have not ruled out seeking international
aid. PSD leader Pedro Passos Coelho has indicated he would seek
political cover for any bailout by blaming the last government
for it. Other, smaller parties are mostly against a bailout.
Rich euro zone states such as Germany have been pressing
Portugal to seriously consider a bailout, as a way of removing a
major source of market instability in the euro zone. They could
increase their pressure if Portuguese yields keep rising.
"The prospect of a bailout has risen drastically and is now
enormous," said Filipe Garcia, head of Informacao de Mercados
Financeiros consultants in Porto.
WHEN WOULD A BAILOUT OCCUR?
Portugal has 4.3 billion euros of bonds coming due on April
15, and a further 4.9 billion euros in June; the weeks before
these redemptions would be logical times to take a bailout.
But if Portugal retains access to the debt market to
refinance those bonds, and is willing to accept very high
yields, it may be able to avoid taking a bailout for many more
months; after June, it will face no more bond redemptions this
A delay in forming a new government would not necessarily
delay a bailout, some political analysts said.
"Although a caretaker government cannot take major
autonomous initiatives, it could take a decision on resorting to
aid if it is backed by parliament," said analyst Antonio Costa
HOW LARGE WOULD A BAILOUT BE?
An official euro zone source estimated in January that were
Portugal to ask for international aid, it might need between 60
and 80 billion euros.
Together, the euro zone's bailout fund, the European
Financial Stability Facility, and the International Monetary
Fund could provide those amounts comfortably -- even if a
planned expansion of the EFSF is held up by wrangling among
WHEN WILL PORTUGAL HAVE A NEW GOVERNMENT?
Socrates presented his resignation to President Anibal
Cavaco da Silva, who said he would hold meetings with all
political parties on Friday and that the government would retain
full powers at least until then.
Cavaco Silva could ask the parties to agree on a new prime
minister and a coalition government without calling an election,
but a consensus on this is unlikely to be reached as Socrates
and Passos Coelho have indicated a general election would be the
most legitimate solution to the stand-off.
So Cavaco Silva will probably ask the state advisory council
and the heads of the parties to discuss dissolving parliament
and calling snap elections. These can be held 55 days after they
are called, at the earliest.
In the meantime, the government would stay on as a caretaker
administration, its functions reduced to strictly necessary
management of public matters.
HOW WOULD ELECTIONS PAN OUT?
The PSD has been ahead in opinion polls for several months
with around 35-38 percent of voting intentions, but it has
rarely neared the threshold needed to win an absolute majority.
Analysts say the Socialist election machine should not be
underestimated. Socrates, an experienced and fierce campaigner,
has said he would stand in a new election. His party still has
around 25-30 percent of voting intentions in recent polls and
could still thwart the PSD.
If it won, the PSD could try to revive a coalition with the
CDS-PP to have a stable majority to pass legislation; it has
signalled it would favour a broad coalition.
In the current parliament, the Socialists have 97 seats, 19
short of the number needed to approve legislation on their own.
The PSD has 81 seats, followed by CDS-PP's 21. The Left Bloc has
16 seats and the Communist-Greens alliance holds 15.
HOW DOES THE PSD DIFFER FROM THE SOCIALISTS?
The centre-right PSD denounced Socrates' latest austerity
measures as arbitrary, poorly thought out and too harsh towards
pensioners, but it supports the idea of cutting the budget
deficit and may simply have used the controversy over the latest
measures to force a crisis that could give it power.
The PSD has said it will stick to Portugal's commitments to
the EU, made by the Socialist government, to cut the deficit to
2.0 percent of gross domestic product in 2013 from a projected
4.6 percent this year.
Some analysts believe the PSD could ultimately prove more
aggressive in reforming Portugal's public finances than the
(Writing by Andrew Torchia)