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Portuguese report
by Euro Reporter
2015-10-22 11:37:34
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Portugal’s borrowing costs rise after inconclusive election

Efforts by political parties to reach agreement following the inconclusive October 4 election have proved fruitless, leaving the country facing an impasse that has unsettled investors. Prices for Portugal’s benchmark 10-year bonds fell on Thursday for the second day in a row, sending the yield up 5 basis points to 2.50 per cent, the sharpest yield rise in European bond markets. Incumbent Prime Minister Pedro Passos Coelho, whose centre-right coalition emerged as the biggest political force but lost a parliamentary majority, is trying to win support from opposition Socialists to ensure the long-term survival of a minority centre-right government. However, he has rejected any further meetings unless the centre-left party is prepared to put forward “serious proposals” for an agreement. Stalled negotiations have left investors wondering whether a leftist coalition may emerge.

portugal_400_01António Costa, the opposition leader, says talks on forming a pro-euro, anti-austerity government with backing from the radical left and hard-line Communists are more advanced than talks with Mr Passos Coelho. Despite Mr Costa’s assertions that a government backed by a broad left-wing alliance would fully honour Portugal’s commitments as a Eurozone member, including compliance with the EU’s fiscal pact on reducing budget deficits, the prospect of support from hard left parties that favour debt restructuring and tax cuts has caused concern among bond investors and rating agencies. President Anibal Cavaco Silva is scheduled to meet party leaders separately next Tuesday and Wednesday in an effort to resolve the deadlock. Analysts expect the president to charge Mr Passos Coelho with forming a minority government, but they see little likelihood of such an administration surviving a full four-year term. The uncertainty has left investors wary of Portugal, which exited an international bailout programme last year following the imposition of strict austerity policies.

However, one bond trader noted that prices had been supported by the fact that Portugal had almost completed all of its funding needs for the year, limiting the supply of more Portuguese bonds in the next few months.  Concerns about the slow rate of global growth, which has reignited interest in fixed income assets, combined with the European Central Bank’s programme of quantitative easing, have also helped to keep Portugal’s 10-year borrowing rate far below the 2015 high of 3.5 per cent.  On Wednesday, Portugal sold €950m of 10-year bonds and €350m of 22-year debt in deals that saw bids exceed the sums on offer.  “For a country that two weeks after an election still doesn’t know who will form the next government, the auction was very positive,” said João Queiroz, head of trading at Banco Carregosa.  Although Portugal paid a higher rate to borrow over 10 years than it had in February, the issue of 22-year debt was sold at 3.23 per cent, down from 3.53 per cent in July.


Mysterious painting on display in Portugal

A 17th-century painting featuring a panoramic view of Lisbon and shrouded in mystery is on display for the first time in the Portuguese capital, since its arrival from Germany last week. The highly anticipated painting will be exhibited at the National Museum of Ancient Art here until February 14, 2016, Xinhua news agency reported on Sunday. Antonio Filipe, director of National Museum of Ancient Art, and local experts will examine the painting in an attempt to better understand some of the mysteries surrounding it.

The painting hides three mysteries -- who painted it, when it was painted and why it was in Germany. Although its existence has been known to experts in Portugal for several years now, most local historians are seeing the painting for the first time. Miguel Soromenho, an art historian, was one of the first to be contacted about the existence of this work in 2008.  "It is the first time I've seen it," he said. The first mystery experts want to uncover is how it got to Germany. Historians only know that it arrived there after the Second World War.

The second mystery is who painted it. Several key inscriptions could provide clues to the answer. Art historian Andreas Gehlert said the painting has "some architectural details of palaces, monasteries and ornaments." The third mystery is the date. The painting has an inscription with the date 1613, which describes in detail the reception of King Philip III of Spain on his first visit to Portugal.  However, the king only arrived in Portugal in 1618 -- five years after that date. One possible explanation for the inscribed date, therefore, could be that the painting was made for the arrival of the Spanish king in 1613. 


Portugal's Socialists poised to form new Left-wing government

Portugal's Socialist party is poised to form a left-wing alliance with the Eurosceptic radical Left in a bid to become the country's new government. Following an election stalemate in which the opposition Socialists came in second place to the incumbent conservatives, leader Antonio Costa has said he is ready to strike up an alliance to become the country's new prime minister. Mr Costa - whose party is on the moderate Left and supports Portugal's membership of the euro - has been making overtures to extreme Leftist parties who saw a surprising surge in October's general election. The Eurosceptic Left Bloc and Communist Party both received 10.2pc and 8.3pc of the national vote share respectively. However, Mr Costa has affirmed that he will only head up an alliance that would pursue policies that will keep the country in the euro, four years after it received an €78bn international bail-out.

"Although the negotiations are obviously still underway, at this moment, everything indicates that the Socialist Party is in better condition to be able to lead a more stable government solution,” said Mr Costa, a former mayor of Lisbon. "The Socialist Party doesn’t want to take power at any cost, at any price. We have to work on what makes sense, and what makes sense is to see if we’re able to have a government that’s stable,” he told Portuguese TV on Friday night. October's general election saw the ruling coalition of Prime Minister Pedro Passos Coelho lose its majority, despite coming in first place with 37pc of the vote. Mr Coelho's government had zealously implemented spending cuts and tax hikes as part of the country's bail-out deal.

Mr Costa had vowed not to provide parliamentary support for a conservative-led minority government, throwing Portugal's economic progress into doubt. "A stable government obviously isn’t a government that is assured to live one year, without knowing what happens next", he said. The political vacuum has seen already seen Portugal become the first Eurozone country to fail to submit its draft budget plan to the European Commission. Portugal's former creditors, including the International Monetary Fund, have urged any new government to stick to the path of austerity and structural reforms in order to return the economy back to health. "The commission has urged Portugal to submit a complete no-policy-change budgetary plan," said EC spokeswoman Annika Breidthardt said. "We look forward to receiving [it] without further delay and, in due course, the new government‘s full draft budgetary plan."



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