Socialists
set for power in Portugal as left topples government
Peter Wise in Lisbon
Last updated:
November 10, 2015 6:27
A Socialist
government supported by the far left is set to take power in Portugal
after defeating a shortlived minority centre-right administration in
a parliamentary vote on its policy programme.
The “rejection
motion”, approved by 123 votes to 107, sparked the fall of the
fiscally conservative government led by Pedro Passos Coelho, the
prime minister who steered Portugal through a painful bailout, just
weeks after October’s elections.
President Aníbal
Cavaco Silva is expected to appoint António Costa, the Socialist
party (PS) leader, to form a government. “The will of parliament
has been made clear. It now falls to the president to act,” Mr
Costa said.
The vote was the
culmination of two days of acrimonious debate as rival groups
demonstrated outside parliament. Paulo Portas, deputy prime minister,
said the leftwing government, although “mathematically possible”
was “politically illegitimate”.
According to the man
expected to become the country’s next finance minister, a PS
government supported by the radical Left Bloc (BE) and hardline
Communist party (PCP) would not “throw money at the economy” to
stimulate growth or consent to increasing the public deficit.
“We will stay on
the path of fiscal consolidation,” Mário Centeno, a PS member of
parliament and a former Bank of Portugal economist, told the
Financial Times in an interview. “It’s not the direction we
challenge, but the speed of travel.”
Mr Passos Coelho was
reappointed after his centre-right collation emerged from the
country’s October 4 general election as the largest force, but lost
its outright majority.
The prospect of a PS
government assured of majority support from the BE and PCP battered
shares in Portuguese banks this week and saw government borrowing
costs reach a five-month high.
But Mr Centeno, a
Harvard-trained academic who specialises in labour markets, and the
architect of the leftwing alliance’s economic programme, said the
notion that he was planning “a pure and simple stimulus of domestic
demand” was superficial and wrong.
“It’s not easy
to reduce our approach to two or three slogans,” he said. “We
will continue to bring down the deficit and debt, but at a slower
pace. This will create the economic space needed to alleviate the
very serious financial restraints families and companies face.”
What had happened in
the stock market and to government bond yields had little to do with
the PS programme but rather reflected “the fragility of Portugal’s
financial system”, which Mr Passos Coelho had “failed to
resolve”, he said.
Mr Centeno said a PS
government would remain committed to keeping Portugal in the euro,
complying with the EU’s fiscal compact and ensuring the country
avoided being sanctioned for excessive deficits.
There was no
question of a PS administration seeking any form of debt
restructuring, an approach favoured by the BE and PCP. “Nobody with
any sense thinks of not paying debts they have contracted,” Mr
Centeno said. “But we will have to find a way of doing what I think
is most important for financial markets and the economy — bringing
down debt at a pace that is compatible with growth.”
Mr Centeno envisages
cutting the budget deficit from 3 per cent of gross domestic product
this year to 1.5 per cent in 2019. Public debt would fall from 128
per cent of GDP to 112 per cent over the same period. The
centre-right government’s stability programme, agreed with the EU,
envisaged cutting the deficit to 0.2 per cent of GDP by 2019 and
public debt to 107.6 per cent.
A slower pace of
consolidation would have to be agreed with the European Commission,
but Mr Centeno is confident Brussels will be receptive. “There is a
much greater perception today of the need to manage debt in the EU.
Nobody was talking about the possibility of European quantitative
easing 18 months ago.”
His economic
programme is based on one drawn up for the PS election campaign and
adapted over three weeks of negotiations with the BE and PCP. Most of
the changes relate to labour market legislation, where the PS has
given way to the far left in areas such as dismissal rules.
These will be put
back on the table at a later date, says Mr Centeno. “We have to
address job precariousness. Out of the 3.5m private sector job
contracts in Portugal at any moment, 1m will be terminated within a
year. Two-thirds of people who lose their jobs receive no
unemployment benefit at all.”
Nobody with any
sense thinks of not paying debts they have contracted. But we will
have to find a way of . . . bringing down debt at a pace that
is compatible with growth
- Mário Centeno,
expected to become Portuguese finance minister
Under the plan,
income would be lifted by restoring public sector wage cuts made
during the bailout by the end of 2016. Social security contributions
would be slightly reduced for people earning less than €600 a month
and the minimum monthly wage would be gradually increased from €589
to €600 by 2019. Tax incentives would be introduced for small and
medium-sized companies.
Mr Centeno is
hopeful that international creditors will prove sympathetic over the
“negative structural changes” Portugal has suffered in the past
four years, particularly a surge in emigration, with the latest
figures showing that “350,000 mainly young people left the country”
in the past four years.
A failure by the
centre-right government to undertake deep reforms of public services
meant “we have fully equipped medical facilities that cannot
operate because of a shortage of nurses or doctors”. Voters, he
said, deserved “a far better return on their taxes”.
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