Portugal calls election amid economic crisis

Reuters

Portugal President Anibal Cavaco Silva attends a news conference at the Belen Palace in Lisbon. Silva on Thursday dissolved Parliament and set a snap election for June 5 following the resignation of the minority Socialist government of Prime Minister Jose Socrates.

Lisbon - Portugal's president dissolved Parliament on Thursday and set a snap general election for June 5, warning the next government faced an “unprecedented economic crisis”.

President Anibal Cavaco Silva's decision came as the country faces acute economic challenges that threaten to push it to follow Greece and Ireland in seeking a bailout from the European Union and International Monetary Fund.

Prime Minister Jose Socrates resigned last week after the opposition rejected his government's austerity measures, prompting downgrades by rating agencies, pushing bond yields to new euro-era highs and raising pressure on the country to ask for a bailout.

“I took the decision to call a general election given the clear degradation of the political situation, shown by the growing difficulty of the minority government and the opposition in agreeing on measures to overcome the economic and social problems Portugal faces,” the president said.

The economic challenges mounted on Thursday as the country missed its budget deficit goal for 2010.

“The next government will face an unprecedented economic and financial crisis,” the president said. “The country's difficulties are so deep that nobody can have the illusion that they will disappear from one day to another.”

All opposition parties and the ruling Socialists urged Cavaco Silva to call elections as soon as possible, the president said.

He made the decision to set the election after meeting the advisory council of state, made up of 19 senior political figures including Socrates, earlier on Thursday.

The opposition had rejected the idea of a coalition cabinet to avoid an election, and have also ruled out pre-election alliances, highlighting a dramatic increase in polarisation and antagonism among the parties.

Socrates' government will remain in power until the election in a caretaker capacity with limited powers. Finance Minister Fernando Teixeira dos Santos said earlier the caretaker government would not have the powers to seek a bailout.

The National Statistics Institute said Thursday the country's budget deficit reached 8.6 percent of gross domestic product in 2010, above a target of 7.3 percent agreed with Brussels. The news sent yields up sharply to new euro lifetime highs.

Economists have focused on two large Portuguese bond redemptions in coming months. Most of them say the country has raised enough funds this so far this year to be able to repay around 4 billion euros in April.

Socrates insists the country can do without a bailout, but the leader of the main opposition Social Democrats told Reuters that his party, which leads in opinion polls, would consider supporting a request for a bridging loan if the financial crisis escalates. - Reuters

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EU official calls for coordinated action to fight eurozone crisis

Europe needed coordinated action and fundamental reforms to resolve the current crisis in Greece and the eurozone at large, a top European official said Thursday.

"This is not a crisis of the euro, but of financial stability across the eurozone," European Union (EU) Economics and Monetary Affairs Commissioner Olli Rehn told a conference here.

"Greece is not the only country facing challenges. Fundamental changes are needed on a European and international level to restore financial stability and we need coordinated efforts," he said.

During a one-day visit to Athens for talks over Greek's ailing economy, Rehn said the new decade would be decisive for Europe to speed up reforms to governance of the banking sector and the macroeconomic imbalance.

Rehn expressed confidence in the Greek Stability and Growth Program, which is designed to tackle the country's severe debt crisis over next three years.

The austerity and reform plan has been financially backed by the EU and the International Monetary Fund (IMF) since spring when Greece came close to default.

"It appears as a daunting task, but there is proof that it can be done," said Rehn, encouraging Athens to keep implementing policies to promote tax compliance and liberalize markets.

These measures were vital not only to economic recovery but to social fairness, Rehn said in a reference to the strong reaction by Greek society to reforms of the pension system and the labor market.

"I have no doubt that Greece will overcome challenges and return to the path of development. I wish Greek people every success. Rest assured Europe stands by you," he said.

Rehn said eurozone countries had been supportive of the extension of Greece's loan repayment granted by the EU-IMF mechanism.

Greece was allowed to repay its 110 billion euro (146.2 billion U.S. dollar) EU-IMF bailout loan in late November.

Source: Xinhua

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