Market jitters as BE leader declares “government of Passos Coelho is dead”

With political stability in Portugal looking more and more like a cork in a storm, declarations to the press on Monday lunchtime by Left Bloc leader Catarina Martins that “the government of Passos Coelho is dead” sent markets into freefall.

The principal index, PSI 20, plummeted more than 3%, with the banking sector “strongly penalised”, writes national tabloid Correio da Manhã.

The reason, ultimately, is that there is little institutional relish for a leftist coalition in Portugal – particularly one with firebrands like Martins making rash declarations long before the party is over.

In reality, Socialist leader António Costa is hedging his bets – and is still believed to be negotiating with the PSD-CDS coalition, which received the most votes in the elections earlier this month, albeit without clinching a workable majority.

Costa has been in talks with the PCP, BE, other minority parties and last night spent two hours locked in discussions with President of the Republic Cavaco Silva.

This morning, speculation is rife over rifts within the Socialist Party, the chance of Costa holding a referendum to see how many of his members support a bid for a coalition of the left, and the fact that all this tactical-manoeuvring could see the PS fall flat on its face.

For now, eyes are on the meeting at 6pm this evening with PSD-CDS negotiators.

According to press reports, the coalition has studied the PS election manifesto and come up with “20 measures adapted to the programme” which it hopes will open the way to negotiation over an agreement on the next government.

A PSD source told CM, “there will only be no agreement if Costa doesn’t want one”.

The source added that among the measures is a proposal to drop the €600 million cut planned for public sector pensions, and adopt instead Costa’s own idea to “diversify receipts by Social Security”.

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