Portuguese Spreads Soar As Cabinet Unravels, "There Are Reasons To Be Concerned" JPM Warns

Tyler Durden's picture

Following finance minister Vitor Gaspar's resignation, the foreign affairs minister Paulo Portas has just added to Prime Minister Coelho's problems and quit in light of who the PM chose as replacement for Gaspar. Gaspar was one of the key Portuguese policy makers to oversee the country’s bailout program, and in his letter of resignation, noted that he had lost the public's support to continue with the deeper-than-expected recession and above-target public deficit developments. Mr. Gaspar's replacement will be the current treasury secretary, Maria Luís Albuquerque, and that is what sparked the Portas to exclaim, "the Prime Minister decided to follow the path of mere continuity at the Finance Ministry. I respect that but disagree." Coelho is due to make a statement at 1900GMT but in the meantime, Portugal's bond market has spiked its most in 10 months relative to its risky neighbor Spain back above 200bps.


And here is JPM warning that the situation in Portugal may turn from bad to worse:

There are increasing reasons to be concerned about developments in Portugal, which has been the ‘forgotten country’ for much of the crisis. The announcement this afternoon that Paulo Portas, the foreign minister, has resigned significantly escalates our near-term concerns. Portas is leader of the CDS-PP, the junior partner in the two-party governing coalition. He has made a statement indicating that his resignation is one of personal conscience, and refusing to comment on the prospects for the Government. However, given his position, his departure will clearly have a significant impact.


The context is important here. We have flagged previously that there were dangers in the division between the two governing parties. CDS-PP has taken a strategy of disassociating itself from some measures which the Government has sought to implement, attempting to deflect blame onto the Prime Minister, Passos-Coelho, and the outgoing Finance Minister, Gaspar. There has always been a risk that the party would find remaining in Government too politically uncomfortable and seek to withdraw support when it sensed that the balance of its interests was shifting. What was needed was a proximate cause. We were worried that the Constitutional Court ruling on the Budget earlier this year may provide the spark, and have remained concerned about local elections in September. It is possible that Finance Minister Gaspar’s departure yesterday, and the reshuffle this week will prove to be the trigger instead. Portas has claimed that Gaspar’s departure opened an opportunity to explore a new path in terms of economic and fiscal policy, and that the Prime Minister has closed this opportunity by immediately appointing Gaspar’s deputy to the post.


At this stage it is still too early to tell how things will play out. These moves may prove to be about no more than tactical positioning, designed to highlight concerns about Alberquerque, the new Finance Minister, and to provide more leverage in a new Cabinet. In this scenario, we would expect the CDS-PP to use its moment of leverage to argue that Portugal should take a different approach ahead of the next Troika review on July 15th. There is some chance that the situation could be more serious however, and Portugal will be worth watching very closely in the next few days. The opposition Socialists have requested a meeting with the President for early afternoon tomorrow, and we may get more details from CDS-PP or the Prime Minister in the mean-time. If for whatever reason the CDS-PP were to withdraw its support, the Government would control only 108 seats in the 230 seat parliament. It would then need to either seek some broader coalition arrangement, or call new elections. At the moment risks appear elevated.

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Hippocratic Oaf's picture

These motherfuckers need to understand that we're not into bad news around a major holiday!

Sell in May......blah, blah, blah

Herd Redirection Committee's picture

First domino to drop... PIIGS


hugovanderbubble's picture

Spain is in default

Spanish Debt Haircuts coming

Spanish Deposits over 100.000 euros haircuts to be applied next 2014

Spain will need to use another 60,Bn Euros from the Precautionary Credit Line (PCCL)



knukles's picture

Everybody please stop with the bitching, pissing, moaning, criticizing everything.
The people who matter tell us everything's just fine.

Take a deep breath and just listen.



oh shit....

derek_vineyard's picture

no worries--paint the taper

Satan's picture

After Cyprus how many 100000 Euro bank accounts do you think there are in Spain?

Martial's picture

Good. Let's get this show on the road.

shankster's picture

Just when you thought it was safe to go outside...

Ban KKiller's picture

We are going to see the mombacho volcano this morning. Is  it safe our will it blow?

Portugal is a safe haven for? Oh yeah, nothing. Except silver?

Dr. Engali's picture

Sound like a good reason to pound gold and to add a percentage point to the S&P.

Panafrican Funktron Robot's picture

Reminder:  Portugal is #14 in the world in official gold holdings, weighing in at 382.5 tonnes.  90% of their forex reserves are gold.  This is the highest percentage in the entire world.  #2 in the world (coming in at 82% of forex reserves):  Greece!

fonzannoon's picture

so why don't they leave the euro and offer a gold backed currency?

How about those miners today? I thought the bottom was in (kito).

disabledvet's picture

because the euro IS the gold back currency. "they're moving the gold around." at some point though...it ends up at the EYE EM F.(ed)

CPL's picture

It's never been gold backed.  It's been the same dysfunctional model all governments run by now.  There is no more gold in Portugal than there is in BreX's Borneo rain forests.

Captain Willard's picture

The Escudo was gold-backed before WWII under the Salazar Regime.

We may live to see another gold-backed Escudo.

asteroids's picture

If you were Germany or France you are probably praying that gold somehow falls into your hands. Didn't Cyprus have to fork over its gold?

Unknown Poster's picture

The rest of their forex reserves are gone.

kchrisc's picture

But where is that gold?! NY? London? If so, it's gone.

hugovanderbubble's picture

Thanks for sharing Tyler.



CPL's picture

There's no risk.  The currency wasn't worth anything to begin with thereby no risk.  All that matters is oil and PM's and not the economically challenged ETF/ETN market either.


Otherwise expect a 'bail in' soon, dead serious about that to.  Cyprus was a 'success', therefore the model will be applied to all NATO partners via G8 agreements two weeks ago.  So close your accounts and cash out ASAP if in portugal.

buzzsaw99's picture

The real question is why does Gaspar give a flying fuck about public support? Nobody else does.

CPL's picture

The public Gapar knows.  Those people outside of the building the decision is made don't matter.

AccreditedEYE's picture

The U.S. Federal Reserve has vanquished "concern"

TrustWho's picture

I think we need Daddy Bernanke to speak to the world. He needs tell the world "Hakuna Matata" and please join me (Bernanke) in singing the Lion Kings lyric over and over again until all world citizens join hands. If not, this situation might just get out of control.

THE DORK OF CORK's picture

Ireland & Portugal have probably the nastiest euro energy balance sheets on the continent.




If Portugal & the others defaults / inflates the oil might come back..........subtracting oil from the emerging BRIC markets.


Then things will get really interesting.


Contrast this with a country that has inflated recently.



In terms of energy the only thing keeping the western european states of the UK , Ireland Portugal & Spain shit together is imported surplus coal from the US.

The UK is now a massive importer of steam coal but Iberia has increased its albeit small imports by a huge amount.







johny2's picture

please, can they at least wait their turn, with all the things going on around, Tyler must be running out of time to write about China, Japan, NSA, Brazil, Turkey, Syria, France, Italy, Greece, Argentina, Egypt, India.... it is challenging even to read fast enough to keep the track of everything.

Satan's picture

"Please, do not worry."

americanspirit's picture

No 'please' about it Satan - that's an order, not a request.

Ben & Barack

Big Ben's picture

And just yesterday Stolper issued a EURUSD long recommendation with a 1.35 target. How does he do it?

thisandthat's picture

Portuguese prime minister to address nation in a while and socialist leader, António José Seguro, soon after.

Government likely felt and general elections to follow.

thisandthat's picture

Well, no, he won't resign.

EU victum's picture

It is now full throttle smoke and mirrors in th Eurozone until Merkel is reelected, the German sheeple, as most social- and welfare state EUSSR, don't have the slightest idea what is over their heads after September!

Mototard at Large's picture

Do not worry.  Do not adjust your sets.  Europe is fixed, the crisis is over and all is well!

It must be true. José Manuel Barroso says the crisis is over and the European Commission would not lie to us - unless they were really serious!

enloe creek's picture

any good movies out this weekend, Oh shoot I'm going hiking in the mountains anyway. nevermind

q99x2's picture

4 years of lying about a recovery and now we have this.

Wish I had money to fly to Egypt to protest Obama.