UPDATE 2-Portugal govt, opposition launch talks on budget

* Government-PSD budget talks start, to continue Sunday

* Rightist CDS-PP party to vote against, but expects passage

* First vote is on Nov. 3

(Recasts with comments after first day of talks)

By Andrei Khalip

LISBON, Oct 23 (BestGrowthStock) – Portugal’s minority government
and the main opposition Social Democrats (PSD) held a first,
“constructive” round of talks on Saturday aiming to reach a deal
on an austere 2011 budget and ease concerns over public
finances.

Negotiating teams headed by Finance Minister Fernando
Teixeira dos Santos and, on the PSD’s behalf, former finance
minister Eduardo Catroga met for nearly five hours on Saturday
and agreed to convene again on Sunday evening.

“The meeting confirmed that there is a constructive spirit
to try to find a point of equilibrium,” Catroga said, adding
however that it was too early to say if there would be an
agreement.

Teixeira dos Santos said that “the first conversation was
positive and we will continue working.”

The PSD wants the Socialist government to reduce a planned
tax increase and to cut spending further. It could defeat the
bill if it voted against it, paralysing politics in the Iberian
country and exacerbating its problems with rising debt.

The government has challenged the PSD to present concrete
alternative steps that would let it meet next year’s target of a
budget deficit of 4.6 percent of gross domestic product, down
from a planned 7.3 percent this year and 9.3 percent in 2009.

A few hours before the talks began, the leader of the
right-wing CDS-PP, the second-largest opposition party, said it
would vote against the bill, but that a deal between the PSD and
the government to pass the bill looked likely — in line with
the view of most commentators.

“The right says its ‘no’ to this policy and this
government,” he said, adding that he believed the PSD and the
government would strike a deal, as they did earlier this year to
pass a range of other austerity measures.

MARKET QUESTIONS

Financial markets regard Portugal as one of the weak links
in the euro zone and view a tight budget as vital to restoring
confidence in its finances. Portugal’s euro zone partners have
been pressing it to pass the bill, concerned that failure would
increase the likelihood of a Greek-style bailout.

President Anibal Cavaco Silva, who is a former PSD prime
minister, was quoted as saying earlier on Saturday that he hoped
the budget would be approved and that it was needed for Portugal
to continue financing itself from markets.

“The budget that the country will have, as I hope it will,
is determined largely by external restrictions that the country
faces,” Cavaco Silva told the weekly Expresso newspaper.

The president’s status is mainly symbolic, but he may play
an important role as mediator if budget talks fail.

Bond investors have raised Portugal’s cost of borrowing to
the sort of levels that proved untenable for Greece earlier this
year and led it to seek IMF and EU aid.

Yields have retreated off euro lifetime highs lately and
Lisbon has much lower public debt than Greece, giving it more
room to work things out by cutting budget spending and reducing
its borrowing over time.

A Socialist-PSD agreement would end weeks of uncertainty in
financial markets, and most analysts believe a deal will be
reached, possibly next week. Some say the PSD may be forced to
abstain even if there is no deal, so as to avoid a debt crisis.

If the PSD abstains from the budget vote, the Socialists can
still push the bill through even if all other parties vote
against. The first vote on the general guidelines is on Nov. 3.
(Editing by Peter Graff)

UPDATE 2-Portugal govt, opposition launch talks on budget