President cools, not cures Portuguese crisis

(Reuters) - Portugal's president has soothed investor concerns by keeping the government in place until 2015, but unresolved tensions over austerity mean the country's political crisis has not been laid to rest.

Essentially the immediate symptoms of crisis have been treated, but the cure for the underlying condition remains elusive.

President Anibal Cavaco Silva on Sunday ruled out a snap election and kept the center-right coalition government in place until the end of its term. This calmed some nerves about Portugal's ability to work its way out of European Union/International Monetary Fund bailout in mid-2014.

After an internal crisis threatened to break-up the coalition and talks for a "national salvation" pact with the opposition Socialists collapsed on Friday, the president's decision not to call an election was welcomed by markets.

Yields on Portugal's benchmark 10-year bonds <PT10YT=TWEB) fell about 33 basis points to 6.59 percent.

"On the face of it, one might construe this (decision) to be a positive in so much as it is seen reducing the risk of a reform hiatus," analysts at Rabobank wrote in a research note.

"But, this maintenance of the status quo does nothing to address the divergences of opinion within the ruling coalition which are likely to return to the fore before too long."

Cavaco Silva warned that the coalition partners would have to keep together to complete the bailout program, allow Portugal to return to the markets and recover from its biggest economic slump since the 1970s.

Prime Minister Pedro Passos Coelho pledged to do just that, saying the country needs to recover the confidence that had been dented by the crisis.

"We will rebuild the confidence without raising any doubts about the process we are carrying out, saying 'yes, we want to complete the assistance program on the agreed date'," he said.

Brussels also hailed the latest developments.

"We welcome the importance the president has placed on the successful completion of the economic adjustment program and will continue to work with the government and support Portugal's efforts to create conditions for a sustained recovery, growth and job creation," a European Commission spokesman said.

But there is a lot that remains unclear.
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