Portugal political pact

Prime Minister Pedro Passos Coelho announced on Thursday that he was "convinced" that the government could survive, despite the political crisis stemming from the resignation of two of his most senior ministers.

"A formula has been found to maintain the stability of the government," the premier said after a meeting with the Portuguese President Anibal Cavaco Silva.

Foreign Minister Paulo Portas said he was stepping down on Tuesday, a day after the resignation of Finance Minister Vitor Gaspar.

The resignation of Portas - who is also the leader of the junior coalition member the Popular Party (CDS-PP) - had posed a particular threat for the governement, led by Passos Coelho's liberal-conservative Social Democratic Party (PSD). Unions and the opposition left subsequently called for new elections to be held.

Passos Coelho said the deal had been reached after he met Portas three times over a 24-hour period. The premier said the deal would involve a "way to guarantee the political support of the CDS-PP."

Party political disgruntlement

In his resignation letter, Portas had said he was unhappy that the prime minister had named Treasury Secretary Maria Luis Albuquerque as the new finance minister. However, Passos Coelho did not accept the resignation.

Portas agreed to meet the prime minister and the two were able to find "a viable solution for the government of Portugal."

While no further details were forthcoming, Portuguese media speculated that the prime minister might reshuffle the cabinet, giving Portas the post of deputy prime minister in charge of the economy.

The resignation of Gaspar - a technocrat who has no party affiliations - has caused less political concern. Gaspar resigned on the grounds that there was not enough popular support for austerity measures of which he was the architect.

The political uncertainty caused by the resignations caused Portugal's 10-year borrowing rate to surge to more than 8 percent on Wednesday. The rate fell back to 7.216 percent on Thursday.

European Central Bank chief Mario Draghi on Thursday afternoon ruled out the possibility of the ECB buying Portuguese government bonds in an effort to defuse the crisis. Draghi said the country did not meet the criteria to qualify, given that it did not regularly issue long term bonds.

rc/jm (AP, AFP, Reuters)