Opposition head António José Seguro causes market turmoil as he calls for deal with Brussels to be renegotiated
Portugal's opposition Socialist party spooked financial markets and pushed up the government's cost of borrowing after it demanded Lisbon renegotiate the terms of its bailout deal with Brussels.
The news came as Fitch became the third ratings agency to strip France of its AAA rating, to AA+. In Portugal, the Socialist leader, António José Seguro, said he was ready to discuss a pact with the prime minister, Pedro Passos Coelho, but any coalition needed to agree that austerity measures agreed with Brussels had failed. "We have to abandon austerity politics. We have to renegotiate the terms of our adjustment programme," Seguro told parliament. "The prime minister has to recognise publicly that his austerity policies have failed."
The political turmoil has already forced Lisbon to request a delay in the eighth review of the bailout by its creditors, initially due to start on Monday, until the end of August or early September.
The delay drove up yields on Portuguese government bonds, which determine Lisbon's borrowing costs, with 10-year yields surging 90 basis points to 7.87%.
The euro stayed relatively calm, maintaining its value against sterling at just over 86p, as the markets viewed Portugal's problems as self-contained and affordable under existing bailout programmes.
The bad news coming out of Portugal was offset by Ireland's efforts to shrug off the financial crisis, which received a boost after Standard & Poor's said its debt burden may fall faster than expected.
The credit ratings agency maintained the BBB+ rating on Dublin's sovereign bonds but upgraded the outlook from stable to positive.
The upgrade comes before a planned year-end exit from its international bailout, and backs its status as Europe's strongest bailed-out economy amid the political turmoil in Portugal and Greece.
"The outlook revision reflects our view that Ireland's general government debt burden is likely to decline more rapidly, as a percentage of GDP, than we had previously expected," S&P said in a statement.
"Ireland's economic recovery is under way."
Greece is braced for a general strike next week while Portugal faces the collapse of its coalition government and a general election next year.
The president, Anibal Cavaco Silva, threw Portugal into disarray this week by refusing to allow the premier to heal a rift in the ruling coalition with a controversial cabinet reshuffle, calling for a cross-party agreement to last until the end of the bailout programme in June 2014, to be followed by early elections.
The Socialists have blamed the government's austerity drive under the €78bn (£67bn) bailout for pushing Portugal into its biggest economic slump since the 1970s and unemployment to record levels of around 18%.
"More time is something which we have always fought for. More time so our adjustment curve is not so steep and we can relieve sacrifices families and businesses have to make," Seguro, whose party leads in opinion polls, said.
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