Jose Socrates, Portuguese Prime Minister, Resigns After Austerity Measures Rejected

March 23, 2011 10:35:50 PM

By Daniel Alvarenga and Axel Bugge

LISBON, March 23 (Reuters) - Portuguese Prime Minister Jose Socrates resigned on Wednesday and warned of grave consequences for the country after parliament rejected his government's latest austerity measures aimed at avoiding a bailout.

The move threw Portugal into uncertain political terrain after months of battling against growing investor concerns over its ability to tame its public finances and avoid following Greece and Ireland to seek international aid.

"This political crisis has very grave consequences for the confidence Portugal needs from institutions and the financial markets," Socrates said.

Socrates presented his resignation to President Anibal Cavaco da Silva.

The president said in a statement that he would hold meetings with all political parties on Friday and that the government would retain full powers at least until then. That leaves Socrates' government in place for the duration of a European summit in Brussels on Thursday and Friday.

The main opposition Social Democrats, who have previously backed austerity, said they want an election, hoping that the centre-right party's lead in opinion polls will bring it to power.

"I am convinced that the road we will follow, the normal road of democracy, is the path of giving the word back to the Portuguese so as to choose a new, stronger government with more confidence to beat the crisis," Social Democrat leader Pedro Passos Coelho said. "And that is what I'll tell the president."

The events in Portugal prompted the euro to extend losses against the dollar after trading lower all Wednesday on wariness before the Portuguese vote and on news of a delay in increasing a euro zone bailout fund. Portuguese stocks fell and bond yields shot up.

The euro slipped to $1.4103 after the news from about $1.4117 just before parliament voted and was down about 0.7 percent on the day.

All opposition parties voted against the measures in the 230-seat parliament, where the Socialists have 97 seats.

The government had hoped to obtain support for its plan before Thursday's EU summit, to reduce market pressure on Portugal's sovereign debt.

The EU leaders, however, look set to disappoint investors by delaying any approval of a beefed-up euro zone rescue fund till June.

Investors concerns could now grow as the country faces at least several weeks of political uncertainty.

Socrates said he would remain in power in a caretaker capacity.

"The country will not be without a government. The government will continue to fulfil all its duties as a caretaker government," Socrates said.

BOND YIELD UP

The Portuguese benchmark 10-year bond yield rose to 7.82 percent on Wednesday from Tuesday's 7.68 percent and the spread over safer German Bunds rose 16 basis points to 459 bps. Many economists see borrowing costs above 7 percent as unsustainable and say Portugal will have to resort to the rescue mechanism.

Shorter-dated bonds were harder hit, with Portugal's five-year bond yield at a euro lifetime high of 8.3 percent ahead of the vote.

"The prospect of a bailout has risen drastically and is now enormous," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, adding that Portugal has over 9 billion euros of maturing bonds through June.

The constitution stipulates that the country can hold a snap election no sooner than 55 days after the president calls one.

"My worry is the period of inaction before a new government takes over," said Silvio Peruzzo, an economist at RBS in London.

Political analyst Antonio Costa Pinto said a caretaker government would have its hands tied.

"Although a caretaker government cannot take major autonomous initiatives, it could take a decision on resorting to aid if it is backed by parliament," Costa Pinto said.

Whatever the outcome, opposition to austerity may increase as the Portuguese face lower wages and higher taxes, and the country returns to recession.

Large protests have been held against austerity on the past two weekends and on Wednesday train drivers went on strike to demand higher wages, creating traffic chaos around Lisbon as commuters were forced to take their cars to work. (Additional reporting by Shrikesh Laxmidas, Elisabete Tavares, Andrei Khalip, Filipa Lima and Sergio Goncalves; writing by Axel Bugge; Editing by Philippa Fletcher)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[gerald4]

05:06 PM on 03/24/2011

Does anyone with a high school education actually believe that the US Government or the Portugese Government can just continuously borrow more and more US dollars and/or Euros back from the industrial foreigners (actually sell foreigners freshly printed paper US Treasury Bonds or Portugese Government Treasury Bonds return for some of the US dollars and/or Euros that foreigners earned by making consumer goods that US and Portugese citizens consumed) and then use these US dollars and Euros to pay for government expenses without destroying the buying power or the value of the US Dollar and/or the Euro?

[gerald4]

03:54 PM on 03/24/2011

Real wealth AND THE ASSOCIATED JOBS TO CREATE WEALTH FOR OTHERS is created and/or acquired MAINLY when members of a family, nation, city, state, island, tribe, or Portugese citizens do some of the following actions:

1. plant, grow and/or harvest something of commercial value from the earth;

2. extract something of commercial value from the earth;

3. manufacture or construct something of commercial value that is consumable or permanently useful for rental income;

4. provide professional services (medical, legal, dental, engineering, architecture, accounting, land, surveying technology, etc.);

5. collect payment for patent and copyright uses;

and then trades, sells, leases or rents these items and/or services to parties outside of their family, in return for a net transfer of gold, currency or commodities from other parties outside of their family into their own family.

The members of that family can then reflect their real wealth and financial security with the net positive accumulation of grain, gold, cattle, jewels, land, buildings, hotels, casinos, factories, commodities and/or other marketable products for reserve use in times of emergency and/or also to raise the standard of living for the members of that family.

This accumulated wealth is then available to be taxed in order to create funds for non-wealth creating activities such as sclools, water and sewer systems, repay sovereign national debts, pork barrel projects, green projects, infrastructure projects, wars, streets, bridges, highways, welfare, unemployment, school teachers, policemen, fire fighters, and other government bureaucratic functions.

[gerald4]

01:45 PM on 03/24/2011

"The Portuguese benchmark 10-year bond yield rose to 7.82 percent on ........"

Who would buy Portuguese Treasury bonds at any yeild percentage rate?

Especially if portugal is not intending to or capable of repaying those bonds.

[BMHVR]

03:37 PM on 03/24/2011

Those who are buying Portuguese bonds assume the eurozone led by Germany will bail out Portugal instead of letting them default. The day will come when Germany says no and that will pretty much be the end of Portugal as a developed nation and the end of the eurozone at large.

[gerald4]

03:45 PM on 03/24/2011

Maybe the European Union should not have accepted the PIIGS nations as members since they will destroy the European Union.

California might destroy the US economy if California is allowed to dip into the US treasury for spending money.

[gerald4]

04:44 PM on 03/24/2011

Every time that the USA prints and sells a bunch of fresh US Dollars and/or US Treasury Bonds, the value and buying power of each existing printed US dollar reduces proportionately.

One US Dollar that would buy about 8 Mexican pesos in 1960 can now exchange for as much as 15,000 of the 1960 Mexican pesos today.

This is equivalent to about 187,500% inflation over that period.

A $2.00 USA loaf of bread would then cost $3,750.00 today if the USA had implemented Mexican type economic monetary policies in the 1970's, and then $4,000.00 next week, and $5,000 the week after.

[gerald4]

01:25 PM on 03/24/2011

The people of Portugal cannot redeem the bonds that they sold to foreigners and then spent the money to have a good time instead of using that money to industrialize and start working to produce things to sell to foreigners in return for the foreign's gold that could be used to repay their loans and government bonds.

Maybe my wife & I could get a divorce with her awarded all of our assets.

Then she and I could quit working, travel around the world living the high life, buy some new cars, pay for a bigger house in a more expensive neighborhood, quit my second job, stop saving anything, always hire someone to fix things that break, never work to fix anything myself, and take up heavy drinking with my credit (cards) like Portugal until my credit cards were "maxed out", and then I could file bankruptcy and not pay for our good times.

We could then get re-married and live happily hereafter.

But what if she wants a newer, better-looking and younger man instead of me.

Maybe I had better not suggest that to her.

[gerald4]

11:57 AM on 03/24/2011

I do not know why economists or anyone else could ever refer to or compare national (sovereign) debt and/or Federal Government annual Deficit Spending as a percentage of Gross (National) Domestic Product (GDP) as an economic consideration.

This GDP has nothing to do with the ability of a nation to repay their national debt, especially if the majority of the GDP activity was government borrowing money from wealth producing entities in the industrial nations and using this borrowed money to pay tax funded bureaucrat payrolls, state and local tax funded bureaucrat payrolls, unemployment benefits, welfare, retirement pensions, pork barrel projects, providing free medical, housing, wars, social services, pork barrel projects and other tax funded bureaucrat jobs that do not produce any national wealth that the nation could use to repay national (sovereign) debt, reduce the foreign trade deficit, or create national wealth?

I forgot that buying some paper and then printing new toxic paper financial products and selling those instruments also helps the US GDP, and also helps the US Foreign Trade Balance when some of those toxic products are sold to foreigners!

If The USA disallowed exporting title to US assets (Farms, Casinos, Hotels, Office Buildings, Breweries and other privately owned wealth located in the USA that was created by previous US generations prior to de-industrialization, then our Foreign Trade Deficit would be in worse condition than it is today.

[iblogleft]

12:09 PM on 03/24/2011

"unemployme­nt benefits, welfare, retirement pensions, pork barrel projects, providing free medical, housing, wars, social services, pork barrel projects and other tax funded bureaucrat jobs that do not produce any national wealth that the nation could use to repay national (sovereign­) debt"

You really need an education on the real effects of social programs on any economy.

That statement is laughable.

[gerald4]

02:25 PM on 03/24/2011

That statement is very true, and not laughable.

Not paying attention to that statement will destroy the US economy.

Social programs are nice, but only if the economy can afford to pay for them.

[Markrsm]

03:05 PM on 03/24/2011

Dear Iblog,

Lets take this to the end game, everybody is either getting paid by the government or on a social program. Where does the government get money from? Do they just print it and hope some foreign country will take it in exchange for nothing?

Weath is the production of goods, services and government are a tax on wealth, as any service reduces wealth. Government can create a means to increase wealth, such as transportation systems or educational programs, but a government does not create any wealth.

Look at Russia, tons of educated people, lots of natural resources, but due to agovernment control of industry the country has very little wealth.

[Harvee Wallbanger]

11:37 AM on 03/24/2011

I guess he doesn't need the work...

[gerald4]

11:50 AM on 03/24/2011

I think that he got frustrated and just gave up!

I think that I might have done the same in his position.

[EvilBananaPt]

12:15 PM on 03/24/2011

That's absolutely not the case. The man is power hungry and will try to be reelected. He resigned because the opposition gave him no alternative.

Also the problem with this package was not that it puts more austerity. The next government will be a right wing one and will approve the same type of measures (maybe worse since it has more political capital to spend then the socialist party has after 6 years of governance).

The problem is that Socrates negotiated a deal with Europe without having the authority to do so.

He has a minority in the parliament and as such he should have first negotiated with other political parties a plan that he could present to Europe.

He decided to make a gamble, in order to appear a leader that the opposition just followed, and that gamble backfired on him.

[gerald4]

11:01 AM on 03/24/2011

The Portugese people want more free (borrowed) money to spend?

Socratese cannot sell any more freshly printed paper Portugese Bonds to get any more free (borrowed) money to spend on his people like they want him to do.

The USA can do this, why cannot Portugal do the same?

Why should anybody have to work to produce any of the things that we consume?

[iblogleft]

12:30 PM on 03/24/2011

You would first have to understand the situation and the loan expectations that were placed on them to begin with.

One of the stipulations often required for IMF loans is a policy of not subsidizing food production. Do you know why? It is to kill local farming by lowering the costs of imports below the cost of local production. Over a short period of time, it eliminates local food production by driving them bankrupt. That way, even if the country rebels and actually becomes sovereign, they have no means to feed the people other than buying imported foods from subsidized countries.

It is a system designed to create subservient nations, and it works well.

This is simply a repeat of typical IMF and World Bank policy. Privatize everything, kill social services, eliminate local economies, increase imports, and do what they say or else.

This is hardly an isolated incident. It has happened the world over for more than 20 years. It destroys countries, and does it on purpose. It lowers commodity prices, labor costs, social programs, and encourages dog-eat-dog policy. It is a crime against humanity.

After the system collapses, private interests come in and buy it all out on the cheap.

[gerald4]

01:07 PM on 03/24/2011

If Portugal was working and creating wealth through making things and selling those things to foreign nations in return for foreign gold, then they would not have to borrow money.

[altosax]

05:55 PM on 03/24/2011

I didn't know about this behavior. Thank you for this information.

Is this what the Conservatives are referring to when they say "Freedom is on the march?"

[olafTheAwesome]

10:07 AM on 03/24/2011

I'm still trying to figure out how to blame Obama for this.

[VictoryBlue]

12:49 PM on 03/24/2011

Don't hurt yourself now.

[olafTheAwesome]

01:06 PM on 03/24/2011

Don't worry. I'm not into sadomasochism.

[gerald4]

01:34 PM on 03/24/2011

Mr. Bruce L. Hardgraves, USN Retired, of Worland, Wyoming, self describes himself as a "Former Drunken Sailor" and wishes to correct record with his posted opinion in the Northern Wyoming Daily News, April 2, 2010 where he states in a letter to the editor that,

"I object and take exception to every one saying that Obama and Congress are spending money like a drunken sailor. As a former drunken sailor, I always quit (spending money) when I ran out of money."

[altohone]

09:46 AM on 03/24/2011

When "investor concerns" get voted as a top priority get back to me.

Allowing bond market billionaires to dictate policy is not democracy.

The language also implies that investors should face no risk, but too big to fail means they only stand to gain, so how can the threat of loss be used as justification for anything?

[gerald4]

10:51 AM on 03/24/2011

But what if the buyers of the freshly printed paper US dollars and the freshly printed paper US Treasury Bonds that the government prints and sells to pay for government payrolls and other expenses do not buy any more of these paper items?

What if the buyers will only bid a few pennies on the dollar for these items at the Treasury auctions where they are sold?

[maybealittlecommonsense]

10:57 AM on 03/24/2011

Inflation will sky rocket. But you already know that ;)

[netzwerg]

08:26 AM on 03/24/2011

Maybe they can sell some islands to Germany. Acores or Madeira for example.

[gerald4]

10:53 AM on 03/24/2011

Maybe the USA can sell California to repay our national debt?

What if nobody will pay anything for California?

[maybealittlecommonsense]

10:59 AM on 03/24/2011

Just give it away. Probably wouldn't happen, we'd have to pay (create more debt) for someone to take it and assume the liability.

[iblogleft]

12:35 PM on 03/24/2011

Sell the worlds 8th largest economy.

Los Angeles county has more people than the bottom 7 least populated states. They contribute more in taxes than all those states combined.

[aFtersootdamP]

05:14 AM on 03/24/2011

no different than winsconsin. The Country is going down the tubes and the government workers refuse to give up anything.

[george389]

06:47 AM on 03/24/2011

You do know that's not true right? The government workers were willing to accept the pay cuts. You do know this, right?

[MNTom]

08:35 AM on 03/24/2011

I don't think he/she cares.

[Cleo Creech]

04:29 AM on 03/24/2011

Just curious in Europe are the austerity measures accomanied by big tax breaks for business and the wealthy?

Somehow it seems that the U.S. is the only place that would fly.

[gerald4]

02:29 PM on 03/24/2011

Do you think that the US government at each level should increase the taxes on all businesses until they relocate their business to some foreign country and take their (our) jobs with them!

[Cleo Creech]

03:13 PM on 03/24/2011

In case you haven't noticed many already have and it had nothing to do with taxes. Many large U.S. companies actually pay little or no taxes, many oil campanies get tax exemptions altogether. When you factor that in the 35% corporate tax rate becomes an effective rate of 25%, less than most other industrialized nations. Studies have shown that the scare tactic of higher corporate taxes forcing companies out of the country just doesn't hold water.

It's why many people are now pushing for a slightly lower corporate tax, but closing all loop holes and exemptions, which would still give us a net increase in what's actually paid.

[Markrsm]

02:36 PM on 03/24/2011

Dear Cleo,

In England they are doing massive cuts and they now understand that they need to bring back manufacturing jobs to the nation, so they are not donig tax breaks, they are paying companies money up front to move there.

[gerald4]

02:50 PM on 03/24/2011

Was that refferred to as the "English Disease" in the 1950's?

[thestargazer]

03:34 AM on 03/24/2011

Portugal needs to go the way of Iceland and not Ireland!! It's the only way that they can avoid become debt slaves!

[gerald4]

10:24 AM on 03/24/2011

Are you saying that Portugal should not have to pay back the money that they borrowed and spent on themselves?

[thestargazer]

11:57 AM on 03/24/2011

I am saying that they should restructure their debt as you would in a bankruptcy. This problem was not solely created by Portugal but by predatory ratings agencies in cahoots with wall street banks. Any bail-out would cripple the Portuguese economy (and people) forever turning them into perpetual debt slaves.

[Vegan Girl]

12:22 AM on 03/24/2011

Good for the Portuguese people. Nice to see the will of the people prevail somewhere. People, time to wake up and stand up against the shock doctrine.

[gerald4]

10:25 AM on 03/24/2011

Can I not pay my credit card charges?

[thestargazer]

12:16 PM on 03/24/2011

That's up to you?

[iblogleft]

12:37 PM on 03/24/2011

If you are a business, you can file and pay pennies on the dollar.

[Markrsm]

03:46 PM on 03/24/2011

Dear Vegan,

Yes, lets all refuse to pay our debts, see how that works for while. I have been to Kenya, I have seen how it works.

[Paulite]

12:08 AM on 03/24/2011

What did he expect? The country is ran by leftists, they don't understand the concept of paying for anything.

[Robert Nix]

12:08 AM on 03/24/2011

I understand we are still paying for Bush.

[StuffMoreStuff]

10:29 AM on 03/24/2011

Well actually I think we're still paying for Nam, but I your point is duly noted.

[mrmonoxide]

12:33 AM on 03/24/2011

"The country is ran?"

[WorkhelpWorkhelp]

03:10 AM on 03/24/2011

Is.

[Cleo Creech]

04:38 AM on 03/24/2011

I'll translate that into Bush-speak:

Orig) What did he expect? The country is ran by leftist, they don't understand the concept of paying for anything.

Trans) What did he expectinate? The country is runnized by leftinators, they don't underestimate the conceptionization of actuallizing payment for anything. Fool me twice, shame on you.