Portugal crisis deepens as talks broken off

Portugal’s main political parties have broken off talks on a “national salvation” pact to ensure an EU/IMF bailout stays on track, leaving it to the president to decide how to proceed.

Political turmoil has already forced Lisbon to request a delay in the eighth review of the bailout by its creditors, which was initially due to start last Monday, until the end of August or early September.

The 78 billion euro ($102.5 billion) bailout programme and attached austerity policies are associated with the worst recession in Portugal since the 1970s.

Antonio Jose Seguro, the leader of the main opposition Socialist party, said on Friday that the ruling coalition had rejected most of his party’s proposals aimed to renegotiate the terms of the bailout.

The crisis, which started as an internal political rift in the ruling coalition and expanded to a debate over the bailout plan, has threatened to derail Portugal’s planned exit from the bailout and full return to debt markets in mid-2014.

The government says abandoning austerity would undermine Lisbon’s credibility with lenders and investors.

“There were two different visions to exit the crisis. That being clear, it made no sense to continue negotiating for the sake of negotiating,” Seguro told reporters after meeting President Anibal Cavaco Silva.

Seguro said the issue of whether to go ahead with 4.7 billion euro ($6.2 billion) in proposed government budget cuts had been a major sticking point.

Analysts say the situation is very uncertain but the president could still avoid an escalation of the crisis by keeping the ruling coalition in place rather than using his power to dissolve parliament and call a snap election.