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 since Foreign Minister Paulo Portas, the leader of junior coalition partner CDS-PP party, resigned remains elusive.

President Anibal Cavaco Silva on Sunday ruled out a snap election and kept the centre-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 fell about 33 basis points to 6.59 per cent yesterday. Cavaco Silva warned the coalition partners would have to keep together to complete the bailout programme, allow Portugal to return to the markets and recover from its biggest economic slump since the 1970s.

PM says country needs to recover confidence

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 programme on the agreed date’,” he said. Brussels also hailed the developments.

“We welcome the importance the President has placed on the successful completion of the economic adjustment programme and will continue to work with the government and support Portugal’s efforts to create conditions for a sustained recovery, growth and job creation,” the European Commission said.