Despite eurozone ministers’ attempts today to calm fears of a left wing government in Portugal, the Lisbon stock market took a hammering on Monday as markets woke up to the reality of an António Costa government.
Eurozone ministers wanted to avoid negative comments about Portugal’s current political instability and said unconvincingly that they were confident that Portugal will be just fine, "there is always a legitimate government in all countries, and it is with these government that we work," said the president of the Eurogroup.
The Portuguese stock market fell more than 4%, the third day of losses, with interest rates on ten year bonds rising to 2.88%.
Lisbon’s PSI-20 dropped 4.05%, leading losses across Europe on the day that parliamentary discussion of the PSD government programme began, marking the countdown to Prime Minister Pedro Passos Coelho’s ejection.
The 18 companies listed on the main Lisbon stock index, which on Friday were worth €54.8 billion, ended the Monday session with a joint market value of €52.7 billion – a €2 billion drop in a day.
Portugal’s banking sector fell more than 8%, led by Banif down a shocking 10.7%, followed by BCP which lost an equally painful 9.49%.
Analysts at Rabobank did not help the rout, commenting "the programme supported by the left wing includes several proposals likely to irritate the official creditors of the country", including "the reversal of wage cuts for civil servants and the reversal of a privatisations already in progress" i.e. TAP and EGF.
The OECD warned that "political instability may slow down Portugal's reforms, which will weigh on medium-term growth prospects," noting that "the high debt, private and public, and the low profitability of banks continue to be a major source of vulnerability."
