Trials
Ahead for Portugal’s New Government
Prime
Minister Passos Coelho’s new minority government could be
short-lived
By SIMON NIXON
Oct. 25, 2015 1:24
p.m. ET
Is Portugal about to
follow Greece down the path of political instability and leftist
opposition to eurozone fiscal rules?
President Aníbal
Cavaco Silva’s decision last week to ask incumbent Prime Minister
Pedro Passos Coelho to form a new minority government, following this
month’s inconclusive elections, has prompted excitable talk of a
constitutional coup.
By declining to call
upon Socialist Party leader Antonio Costa, who claimed that he could
form a majority government with the backing of anti-European Union,
anti-NATO Communist and radical leftist parties, the conservative
president stands accused of abusing his office to frustrate the will
of the electorate to ensure that Portugal sticks to an EU-mandated
path of fiscal austerity.
Undoubtedly, Mr.
Cavaco Silva helped fan such talk with what even some of his own
party concede was an ill-judged televised address in which he cited
the need to maintain the confidence of markets and adhere to the
country’s European destiny among the reasons for his decision.
Yet the reality is
that Mr. Cavaco Silva has acted fully in accordance with the
constitution, which gives the directly elected president wide
discretion in the appointment of the prime minister.
By choosing Mr.
Passos Coelho, Mr. Cavaco Silva has simply followed historical
precedent: In 40 years of Portuguese democracy, presidents have
always turned first to the party that won the elections.
That Mr. Passos
Coelho won isn’t in doubt. His Portugal Ahead coalition won 39% of
the vote, a result that few pundits had considered possible in the
buildup to the election for two center-right parties that had
presided over four years of painful austerity.
The coalition’s
vote share was greater than that achieved this year by U.K. Prime
Minister David Cameron or Greek Prime Minister Alexis Tsipras.
By the same token,
the Socialist party unambiguously lost: Mr. Costa took over the
leadership in 2014 following what was seen as its poor performance in
that year’s European elections, when it was nearly four percentage
points ahead of Mr. Passos Coelho’s coalition. Yet under Mr. Costa,
the Socialists ended six percentage points behind the coalition
parties in the Oct. 4 general election.
Most analysts
assumed that following such a sharp defeat, Mr. Costa would resign,
leaving Mr. Passos Coelho to form a minority government while the
Socialists regrouped.
But Mr. Costa’s
decision to seek a parliamentary alliance with far-left parties that
have traditionally been his more-centrist party’s ideological
enemies has changed the picture.
Few had seen this
coming, not least since Mr. Costa had appeared to rule it out both
before and after the election. Many political observers believe that
had Mr. Costa suggested before the election that he might form a
government with the help of the far left, he would have lost even
more heavily.
Still, his decision
presents President Cavaco Silva with a dilemma if, as seems likely,
Mr. Costa mobilizes a parliamentary majority against Mr. Passos
Coelho next week, when his government is likely to face a confidence
vote.
He can either ask
Mr. Passos Coelho to stay on as a caretaker prime minister until
June, which is the earliest that new elections could be held under
the constitution. Or he can ask Mr. Costa to try to form a
government—either a formal coalition or minority government—with
his newfound allies on the far-left.
Few believe such an
arrangement could last long given the different party agendas and
their historical rivalry. Early tests would include the need to agree
on a budget for 2016, particularly if Mr. Costa sticks by his
electoral pledge to abide by EU rules on reducing the country’s
fiscal deficit.
The constitution
only requires that Mr. Cavaco Silva act in the national interest, but
both paths condemn Portugal to months of political uncertainty.
That is clearly
unwelcome when the country still faces significant economic
challenges in the form of weak growth, high unemployment and large
public and private debt burdens. Not surprisingly, Portuguese
borrowing costs have risen in recent days.
But short-term
uncertainty is unlikely to put the country’s financial stability at
risk, thanks to an €8 billion ($8.8 billion) cash buffer, small
gross financing needs next year and the calming impact of the
European Central Bank’s bond-buying program.
The key to
Portugal’s fate lies in what impact Mr. Costa’s lurch to the left
has upon the electoral landscape: Will his new and unexpected
alliance with anti-European parties prove popular with voters? Or
will it alienate enough of the party’s traditional centrist
supporters to deliver a conservative majority in the next election?
Mr. Costa is betting
on the former, but his opponents are confident of the latter.
Write to Simon Nixon
at simon.nixon@wsj.com
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