It’s more than 15 years since Socialist leader Antonio Guterres led the only minority government in Portugal to survive a full term since 1974, when a four-decade dictatorship ended.
Advertisement
The Socialist-led program “is clearly less market-friendly than the one of the incumbent government”, analysts at the Royal Bank of Scotland Group in London, including Clement Mary- Dauphin, said.
Costa is proposing to lead a Socialist Party government with the support of the Communists, Left Bloc and Greens in parliament, but these parties aren’t expected to be part of the administration.
Portuguese bonds and stocks were hit on Monday as a coalition of left-of-centre anti-austerity parties looked set to form the country’s next government.
Portuguese government bonds dropped on Monday after the Socialists said party leader Antonio Costa will “formalize” the commitments made by the other parties to back his new government and will present a motion in parliament to reject Coelho’s government program.
Together they will have 122 seats, enough to out-vote the centre-right coalition government, which was left with only 107 after October’s inconclusive elections.
If the leftists succeed, the vote would force the government to resign after just 11 days in power – which would make Passos Coelho’s administration the most shortlived in Portugal’s history.
“The PS is radicalizing and moving away from the political center” – Prime Minister Pedro Passos Coelho. So far, and unlike Greece, it has been immune to radical politics and strong dissent.
The programme agreed by PS, the Left Bloc and the Communists includes restoring four bank holidays abolished during Portugal’s bailout, reversing privatisations that have already begun, tax cuts and increasing social benefits.
The opposition Socialists, Left Bloc and Communists combined now have a majority of seats in parliament. The party says the deficit will fall to 2.8 percent of gross domestic product next year and 1.5 percent in 2017 – better than the latest forecasts from the European Commission.
“There is obviously a concern that a lot of the hard work that has been done through the period of austerity that Portugal has just endured is likely to be unwound”, said Matt Cairns, strategist at Rabobank in London.
Even before taking into account the change in government, the Organization for Economic Cooperation and Development (OECD) warned that the fragile economic recovery risks slowing next year unless the pace of reform is picked up to cut debt, boost competitiveness and encourage investment.
The government’s rejection by parliament would leave President Anibal Cavaco Silva, who has attacked the far left for their Eurosceptic stance, with the choice of either inviting Costa to form a government or keeping Passos Coelho’s government in a caretaker capacity with limited powers until new elections.
Advertisement
Passos Coelho’s second government will be shortest since the country returned to democracy in 1974. If the Socialist-led coalition wins, it will nearly certainly reverse austerity measures.
