Portugal’s finance minister resigns amid pressure for government to soften austerity

LISBON, Portugal – Portuguese Finance Minister Vitor Gaspar quit the bailed-out country’s government Monday, officials said, amid mounting pressure for the government to ease its austerity policies.

Portuguese President Anibal Cavaco Silva’s office announced Gaspar’s resignation on its website and said he will be replaced by Secretary of State for the Treasury Maria Luis Albuquerque. Prime Minister Pedro Passos Coelho’s office confirmed Gaspar’s departure in an email.

Neither statement gave specific reasons for Gaspar’s resignation.

Gaspar was a key member of the government as it struggles to repair its finances after needing a 78 billion euro ($102 billion) rescue two years ago. He was an economist who previously worked at the European Central Bank and had no political career before joining the government following its election in June 2011.

The government is under fierce pressure from opposition parties, labour unions and business leaders to move away from the austerity policies adopted by Gaspar as the country endures what is expected to be a third straight year of recession and a jobless rate of 17.6 per cent.

But Gaspar’s exit is unlikely to herald big policy changes.

The austerity program is a requirement of the bailout creditors — the International Monetary Fund and other EU countries. If Portugal doesn’t stick with the planned cuts and tax hikes the creditors can stop disbursements of the bailout funds, likely making it hard for the country to pay wages and pensions.

Portugal’s European partners, too, have insisted that it sticks with its cost-cutting drive, regarded as crucial if heavily-indebted eurozone countries like Portugal are to break out of their three-year-old financial crisis. Portugal’s government debt stands at almost 124 per cent of gross domestic product, the third-highest in the EU after Greece and Italy.

Furthermore, Albuquerque, Gaspar’s replacement, has in the past fully backed the crackdowns on spending.

Gaspar’s insistence on tax hikes and public sector pay cuts has angered the junior partner in the centre-right coalition government, the Popular Party, but Prime Minister Pedro Passos Coelho’s Social Democratic Party, the senior alliance partner, has stood by him. That has contributed to political tension around the terms of the bailout.

Under Gaspar, Portugal’s fortunes haven’t improved. The jobless rate is forecast to reach 18.5 per cent next year. The bailout creditors predict a contraction of 2.3 per cent this year after the Portuguese economy shrank 3.2 per cent in 2012.

Also, the government has been unable to meet its targets for spending cuts. The budget deficit stood at 6.4 per cent of annual GDP in 2012 — higher than the 5 per cent target for that year though much lower than the 10.1 per cent recorded in 2010.

The bailout creditors have twice eased Portugal’s deficit targets. The latest review softened this year’s deficit goal to 5.5 per cent from 4.5 per cent.