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Portugal government and opposition in talks on budget

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Portugal’s minority government and the main opposition Social Democrats (PSD) held a first, “constructive” round of talks Saturday aiming to reach a deal on an austere 2011 budget and ease concerns over public finances.

Negotiating teams headed by Finance Minister Fernando Teixeira dos Santos and, on the PSD’s behalf, former finance minister Eduardo Catroga met for nearly five hours Saturday and agreed to convene again Sunday evening.

“The meeting confirmed that there is a constructive spirit to try to find a point of equilibrium,” Catroga said, adding however that it was too early to say if there would be an agreement.

Teixeira dos Santos said that “the first conversation was positive and we will continue working.”

The PSD wants the Socialist government to reduce a planned tax increase and to cut spending further. It could defeat the bill if it voted against it, paralysing politics in the Iberian country and exacerbating its problems with rising debt.

The government has challenged the PSD to present concrete alternative steps that would let it meet next year’s target of a budget deficit of 4.6 percent of gross domestic product, down from a planned 7.3 percent this year and 9.3 percent in 2009.

A few hours before the talks began, the leader of the right-wing CDS-PP, the second-largest opposition party, said it would vote against the bill, but that a deal between the PSD and the government to pass the bill looked likely — in line with the view of most commentators.

“The right says its ‘no’ to this policy and this government,” he said, adding that he believed the PSD and the government would strike a deal, as they did earlier this year to pass a range of other austerity measures.

MARKET QUESTIONS

Financial markets regard Portugal as one of the weak links in the euro zone and view a tight budget as vital to restoring confidence in its finances. Portugal’s euro zone partners have been pressing it to pass the bill, concerned that failure would increase the likelihood of a Greek-style bailout.

President Anibal Cavaco Silva, who is a former PSD prime minister, was quoted as saying earlier Saturday that he hoped the budget would be approved and that it was needed for Portugal to continue financing itself from markets.

“The budget that the country will have, as I hope it will, is determined largely by external restrictions that the country faces,” Cavaco Silva told the weekly Expresso newspaper.

The president’s status is mainly symbolic, but he may play an important role as mediator if budget talks fail.

Bond investors have raised Portugal’s cost of borrowing to the sort of levels that proved untenable for Greece earlier this year and led it to seek IMF and EU aid.

Yields have retreated off euro lifetime highs lately and Lisbon has much lower public debt than Greece, giving it more room to work things out by cutting budget spending and reducing its borrowing over time.

A Socialist-PSD agreement would end weeks of uncertainty in financial markets, and most analysts believe a deal will be reached, possibly next week. Some say the PSD may be forced to abstain even if there is no deal, so as to avoid a debt crisis.

If the PSD abstains from the budget vote, the Socialists can still push the bill through even if all other parties vote against. The first vote on the general guidelines is on November 3.

Source: Reuters

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