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Portugal’s political parties attempt to hammer out fiscal pact - by Peter Wise

Portugal's ruling coalition and main opposition party will attempt this week to hammer out a “national salvation” pact aimed at overcoming a political crisis that could bring down the government and derail the country’s €78bn bailout program.

In response to a call from President Aníbal Cavaco Silva, the three parties have set themselves a deadline of July 21 for reaching an agreement that will commit future governments to the tough fiscal discipline required to keep the programme on track.

But a wide gulf separates the two sides and expectations of a successful outcome are low. “Miracles do happen, but I don’t see much more than a 10 to 15 per cent chance of a deal,” Marcelo Rebelo de Sousa, a commentator and former government minister, told Portuguese television.

Even if an agreement is reached, pressure from the opposition Socialists (PS) to ease the terms of the bailout and growing resistance to further austerity measures from within the two government parties could produce proposals that are unacceptable to Portugal’s international lenders.

Holger Schmieding, chief economist with Berenberg, said the “troika” of the EU, the International Monetary Fund and the European Central Bank was “unlikely to yield much further to Portuguese demands” after having already twice relaxed the fiscal targets Lisbon is required to meet.

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