Portugal's president dissolved parliament today and set a snap general election for June 5th, warning the next government faced an "unprecedented economic crisis."
President Anibal Cavaco Silva's decision came as the country faces acute economic challenges that threaten to push it to follow Greece and Ireland in seeking a bailout from the European Union and International Monetary Fund.
Prime minister Jose Socrates resigned last week after the opposition rejected his government's austerity measures, prompting downgrades by rating agencies, pushing bond yields to new euro-era highs and raising pressure on the country to ask for a bailout.
"I took the decision to call a general election given the clear degradation of the political situation, shown by the growing difficulty of the minority government and the opposition in agreeing on measures to overcome the economic and social problems Portugal faces," the president said.
The economic challenges mounted on Thursday as the country missed its budget deficit goal for 2010.
"The next government will face an unprecedented economic and financial crisis," the president said. "The country's difficulties are so deep that nobody can have the illusion that they will disappear from one day to another."
All opposition parties and the ruling Socialists urged Cavaco Silva to call elections as soon as possible, the president said.
He made the decision to set the election after meeting the advisory council of state, made up of 19 senior political figures including Socrates, earlier on Thursday.
The opposition had rejected the idea of a coalition cabinet to avoid an election, and have also ruled out pre-election alliances, highlighting a dramatic increase in polarization and antagonism among the parties.
Socrates' government will remain in power until the election in a caretaker capacity with limited powers. Finance minister Fernando Teixeira dos Santos said earlier the caretaker government would not have the powers to seek a bailout.
The National Statistics Institute said today the country's budget deficit reached 8.6 per cent of gross domestic product in 2010, above a target of 7.3 per cent agreed with Brussels. The news sent yields up sharply to new euro lifetime highs.
Economists have focused on two large Portuguese bond redemptions in coming months. Most of them say the country has raised enough funds this so far this year to be able to repay around €4 billion in April.
Socrates insists the country can do without a bailout, but the leader of the main opposition Social Democrats told Reuters that his party, which leads in opinion polls, would consider supporting a request for a bridging loan if the financial crisis escalates.
Reuters