Leftists
ready to topple Portugal’s austerity premier
Markets
rattled as Portugal poised to get Socialist-led government backed by
far left.
By PAUL AMES
11/9/15, 8:10 PM CET
Portugal looks
certain to follow Greece as the second eurozone nation this year to
see the far left gain a share of power, as an unprecedented alliance
of Socialists, Communists and the radical Left Bloc prepares to
topple a center-right government sworn in just 10 days ago.
“We’ve
established the conditions to form a government that’s stable,
responsible, coherent and lasting,” António Costa, leader of the
Socialist Party (PS) and likely next prime minister, told reporters
after the party’s governing body approved his deal with the far
left.
Costa has been
seeking to reassure investors and Portugal’s eurozone partners that
his government is not headed for a Greece-style clash with creditors.
Unlike in Greece,
where the radical Syriza party leads the government, Portugal’s
Communists and the Syriza-allied Left Bloc will play a supporting
role to the traditionally mainstream, center-left Socialists.
However, markets are
starting to worry — the Lisbon stock exchange dropped 3 percent
Monday with banks leading the fall, while the yields on Portugal’s
10-year bonds climbed to a four-month high.
Over the weekend,
Costa won support from the Portuguese Communist Party (PCP) and the
Left Bloc (BE) for a Socialist-led government, after agreeing a
program designed to roll back many of the austerity measures
introduced by the center-right over the past four years.
Although Costa was
the principle loser of elections held on October 4, he has pulled
together a majority in parliament by striking the deal with the two
far-left parties who, until recently, were bitter foes of his
middle-of-the-road, pro-European party.
Outgoing Prime
Minister Pedro Passos Coelho led a center-right coalition to victory
in the election, but fell eight seats short of a outright majority.
A new administration
led by Passos Coelho was sworn in last week, but it appeared doomed
from the start after Costa vowed to team up with the Communists and
Left Bloc to vote down the government program.
“The
PS is radicalizing and moving away from the political center” —
Prime Minister Pedro Passos Coelho.
That vote is
expected Tuesday at the end of a two-day debate in the Assembleia da
República.
Passos Coelho opened
the debate Monday afternoon, acknowledging his impending defeat and
pledging to resist the incoming leftist government, which he accused
of undermining 40 years of democracy by failing to back the party
that came first in the elections.
“I will take my
responsibility to not collaborate with and to oppose a negative
policy that will be ruinous for Portugal, and which treats the
Portuguese people as mere instruments of political power play,” he
said, to applause from the right-wing benches. “The PS is
radicalizing and moving away from the political center.”
Negative
consequences
Costa finalized
deals with the PCP and Left Bloc over the weekend, agreeing to an
anti-austerity program for a left-wing government that includes: a
phased increase of the minimum wage from €505 to €600 by 2019;
reversing pension and public-sector wage cuts; investing more in
health and education; reducing taxes on the low paid and small
businesses; and a freeze on privatizations.
The Socialists
insist concessions to the hard left won’t compromise Portugal’s
commitments to eurozone deficit- and debt-reduction targets. 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.
German Finance
Minister Wolfgang Schäuble expressed confidence that Portugal would
continue on the “path of success” followed over the past four
years, when Passos Coelho’s center-right government managed to exit
from a €78 billion 2011 bailout program.
“We’re
surely going to face enormous pressure from the Europe of austerity”
— Catarina Martins, Left Bloc.
However, market
concerns are mounting.
“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. “That will have some pretty negative consequences for the
outlook, for the economy, certainly for the ability of the country to
come to market.”
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.
“We’re surely
going to face enormous pressure from the Europe of austerity, we’re
surely going to face enormous pressure from the big international
financial groups,” Left Bloc leader Catarina Martins warned Sunday.
If Passos Coelho’s
government is defeated on Tuesday, as seems inevitable, Portugal’s
head of state, President Aníbal Cavaco Silva, is expected to ask
Costa to form a government in the coming days.
Passos Coelho’s
second government will be shortest since the country returned to
democracy in 1974.
Costa’s
administration should last at least until next Spring because the
constitution says parliamentary elections must be separated by at
least six months. Its survival beyond that will depend on how well
the Socialist leader can balance Brussels’ demands for tight
finances with the anti-austerity wish-list of his new left-wing
allies.
Authors:
Paul Ames
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