Portugal's governing centre-right coalition today sought a solution to a political crisis caused by the shock resignation of two ministers over its bailout reforms which has sparked cries of concern from European authorities as financial markets took fright.
Stock markets fell and bond yields rose as the crisis fed fears of a new wave of instability from the eurozone's debt-laden periphery.
Alarm spread after Foreign Minister Paulo Portas of the junior partner in the governing coalition, the small conservative CDS-PP party, resigned yesterday evening, a day after the shock departure of finance minister Vitor Gaspar.
The crisis came at a delicate time as Prime Minister Pedro Passos Coelho tries to fulfil the terms of the 2011 bailout that rescued Portugal from financial collapse.
Portuguese media reported today that the agriculture and social security ministers who belong to Portas' CDS-PP party were also likely to quit but chairman of the party's congress, Luis Queiro, said the two had decided to stay on in their posts.
The leadership of the party had designated Portas to hold talks with the prime minister "to together find a viable solution for the government of Portugal", Queiro added.
Passos Coelho yesterday refused to accept Portas' resignation and vowed not to resign himself.
"I am convinced that it will be possible to find the necessary conditions to ensure the stability of the government," he told reporters in Berlin at a top-level meeting on youth unemployment.
European officials urged the premier to settle the uncertainty as observers speculated that President Anibal Cavaco Silva would call a snap election.
"The political situation should be clarified as soon as possible," said the European Commission's Portuguese president, Jose Manuel Barroso.
Lisbon's key PSI 20 index of leading shares closed 5.31 per cent lower, with leading exchanges elsewhere in Europe sliding too.
Portuguese borrowing prices soared with the yield on the benchmark 10-year government bonds spiking above eight percent for the first time since November 2012, before easing a little.
"The initial reaction of the markets shows the obvious risk that the financial credibility recently built up by Portugal could be jeopardised by the current political instability," said Barroso.
"If this happens it would be especially damaging for the Portuguese people, particularly as there were already preliminary signs of economic recovery.
