A file photo of Portuguese radical left-wing party Bloco de Esquerda’s candidate and member of the Portuguese parliament, Marina Mortagua (left) and Bloco leader Catarina Martins  taking part in a campaign rally in Lisbon last month.

Reuters
Lisbon


Reforms may be the biggest casualty of Portugal’s general election, which has weakened the centre-right government and fortified the hard left.
The ruling coalition of Prime Minister Pedro Passos Coelho won the biggest share of votes on Sunday, making him the first leader in Europe to be re-elected after imposing austerity policies to steer his country through an international bailout.
But he fell well short of a majority, leaving his Social Democrat-led government “absolutely shackled from fulfilling its programme, even if it could get it through parliament by a miracle”, daily Publico said in an editorial.
Lisbon weaned itself off its 78bn euro ($87.8bn) EU/IMF bailout programme last year, but key unfinished reforms include making cuts of 600mn euros a year to ensure the sustainability of the pension system.
The government has promised to cut the budget deficit to below 2.7% of gross domestic product this year from 7.2% in 2014, which would be the first time Portugal has brought it below the euro zone’s 3% ceiling.
“Whereas the re-election of the government is expected to ensure a continued focus on fiscal consolidation, the loss of the previous absolute majority will likely complicate the implementation of further structural reforms,” ratings agency Moody’s said in a report yesterday.
The outcome of the Portuguese vote and its impact on economic policy will be closely watched across Europe.
Elections are due later this year in Spain and by next spring in Ireland, two other countries emerging from years of austerity in the wake of the global financial crisis.
With just 104 of the 230 seats in parliament, the coalition led by Passos Coelho would need support from the opposition Socialists, with 85 seats, in order to get laws passed.
Yet no minority government has survived a full term since the country returned from dictatorship to democracy in 1974.
Socialist leader Antonio Costa faces criticism for failing to capitalise on the deeply unpopular spending cuts and tax hikes launched by the government during the debt crisis. He has said he will not resign, but speculation has already started over his replacement.
“Can you imagine what pressure Costa must now be under as his lack of attention to his left flank explains why he fell short,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy.
Costa promised in his campaign to ease back on austerity, defend the welfare state and invest in science and culture, but he also pledged to stick to budget goals agreed with Europe, one reason why investors have so far been relaxed about the election outcome.
But he faces a threat from the advance of the more radical Left Bloc, the biggest gainer in the election. It more than doubled its seats in parliament to 19, while the traditional Communists gained one, to 17.
The result means that the Socialists, Left Bloc and Communists together would have a majority, though analysts see such an alliance as unlikely and Costa himself has ruled it out.
Left Bloc leader Catarina Martins has sensed the moment, repeatedly saying she is ready to rule with the Socialists.
Her three conditions are that the Socialists drop their support for cuts to social security contributions and a freeze on pensions, and reverse their backing for laws that make it easier to fire workers.
Fernando Ribeiro Mendes, a former secretary of social security in a previous Socialist government, said the far-left’s advance would squeeze the party itself to turn more left-wing.
Mendes wrote in a commentary that the moderate stance of previous Socialist leaderships “will be challenged, a bit like what is happening in Britain’s Labour Party, after the lack of success of Antonio Costa’s disguised and inconsistent centrism.”
President Anibal Cavaco Silva was starting consultations to form a government with political parties on Tuesday. The government needs to present the general guidelines for a 2016 budget bill by mid-October.
Bond markets have helped both the government and Socialists by putting no pressure on the country so far, partly because of hopes for more quantitative easing by the European Central Bank.
“Luckily, this election took place in a period of remarkable calm in European debt markets,” said Spiro. “This calm could make it difficult for Passos Coelho to convince Costa to act in a responsible manner.”