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Thursday, July 11, 2013 2:34 PM

Portugal Uncorks Bottle of EU Crisis Genie

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The Financial Times reports Portugal president’s call for national unity backfires

[President] Aníbal Cavaco Silva’s call for a “national salvation” agreement between the ruling coalition and the main opposition party, leading to early elections in June 2014, was intended to restore calm following a government crisis triggered by the resignation of two senior ministers.

But the president’s appeal for a cross-party deal in support of the country’s €78bn bailout programme prompted a fresh increase in bond yields on Thursday and hit share prices that had only just recovered from last week’s political turmoil.

“Portugal is in a deeper crisis than it was a week ago,” said Ricardo Santos, an analyst with BNP Paribas. “The president sought to ease volatility, but he has almost certainly increased it.”

Silva ruled out holding an immediate snap election, saying this would significantly increase the risk of Portugal needing a second bailout. But he called on the three parties to agree on holding an early ballot next June, a year ahead of schedule.

Agreeing to Mr Cavaco Silva’s proposal would require António José Seguro, the opposition PS leader, to support €4.7bn in planned spending cuts and the potential laying off of tens of thousands of state workers, measures that he vehemently rejected until now.

“It’s difficult to see how the president’s proposal can work given that the concessions involved could end the political careers of both the opposition leader and the prime minister,” said Mr Santos.

Portugal was plunged into crisis last week after Paulo Portas, leader of the junior coalition party, resigned as foreign minister less than 24 hours after Vítor Gaspar also quit as finance minister amid tensions caused by government austerity policies.
Portugal 10-Year Bond Yield

Multiple Crisis Genies Unleashed

The coalition in Portugal cannot last and Portugal is 100% certain to need another bailout.

With German elections coming up in September, politicians everywhere are scrambling to contain the "Crisis Genie" until after the election.

Financial Times writer Peter Wise says Last week’s protests in Portugal show it will not take much to uncork the botle of the ECB’s crisis genie.

I suggest more than one genie is already out of the bottle: the spy genie, the Italy genie, the Portugal genie, the EU Banking Proposal genie, etc.

Some genies are more powerful than others, but all will help AfD bring an end to the regime of chancellor Merkel in September. For related discussion, please see Germany Election Update: AfD Soars in Online Poll; Is Merkel Toast?

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