Tuesday, June 21, 2011

Big week: Tuesday in Lisbon

Portugal's new government officially starts running the country today. The new prime minister, Pedro Passos Coelho and his 11-member cabinet will be sworn in by President Aníbal Cavaco Silva.

The government's most pressing task will be to implement the stringent terms of the EU/IMF €78 billion bailout agreement. But even before taking office, Passos Coelho has suffered the embarrassment of parliament rejecting his party's first choice of as leader of the assembly, Fernando Nobre, an independent.

"I am sad that Parliament decided not to take the step to select a true independent to head it," Passos Coelho said yesterday. Parliament will vote on an alternative candidate later today.

A spot of good news: Portugal's budget deficit continued to fall sharply last month from a year ago, according to the ministry of finance in Lisbon. Investors and authorities from the European Union and International Monetary Fund are obviously keeping a close eye on the figures. Last year, the country's deficit was 9.1% of gross domestic product. Under the terms of the EU/IMF bailout, Portugal is committed to cutting its deficit to 5.9% of GDP in 2011, to 4.5% in 2012 and to 3% in 2013.

The news is mostly bad, though. The professional services agency Ernst & Young is describing Portugal’s bailout as “a temporary oxygen balloon” . Other analysts say the €78 billion loan is just a short-term solution to cover upcoming deficit repayments. Portugal’s structural problems (weak competitiveness and low economic growth) remain unaltered.

Like the air temperature in the Algarve, which is forecast to soar in the next couple of days, the political climate in Portugal is about to hot up.

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