Portugal veers to the right
The new government must now implement the EU-IMF rescue package
Portugal – The snap parliamentary election held on June 5 in Portugal didn’t bring any startling results. As both the experts and the numerous sociological surveys predicted, the centre-right Social Democratic Party won, getting 105 out of 230 seats in the Portuguese parliament. The big losers were the Socialists headed by Jose Socrates, who ran the country’s government for the last six years.
In order to have a majority government the Social Democrats will have to form a coalition with the conservative Popular Party, which won 12 percent and 26 seats, thus making it Portugal’s third biggest party. Leaders of both parties already expressed their readiness to form the coalition government.
The necessity to hold snap parliamentary elections appeared after the resignation of Jose Socrates from the post of prime minister in March this year, when he, heading the minority government, failed to approve the Stability and Growth Pact in parliament. The measures involved were supposed to guarantee credit from the European Union and the IMF for Portugal. However, with a record level of unemployment (12.6 percent in April this year), and a state budget deficit of eight percent, was financial aid the only remaining salvation for the Portuguese economy, which is on the brink of default. In May the EU and IMF agreed to provide 78 billion euros of credit if the major parties, regardless of the elections results, will be obliged to implement a number of unpopular measures. The “financial rescue” plan imposed on Lisbon includes budget consolidation with a gradual budget deficit decrease to three percent by 2013, healthcare and job market reforms (freezing the minimal wage at the level of 485 euros and decreasing the duration and amount of unemployment payments), and a privatization plan (especially in the energy sphere, and transportation and postal services). It is also expected to realize the recapitalization of the banking sphere and increase taxes, especially for pensions and salaries exceeding 1,500 euros.
Thus, though the center of gravity in Portugal moved from left to right, Social Democrats and the Popular Party have to ensure the fulfillment of the requirements of the EU and the IMF in compliance with the guarantees these parties provided in May this year. In addition, the right wing strongly supports the idea of privatization and of a simplification of employment rules. These would affect the firing of government workers — an innovation until recently rejected by Socialists, the coalition of Communists and Greens, and the Left Bloc. “The years to come will require much bravery from all Portugal. We know the difficulties we’re facing. To overcome these extreme difficulties we need much courage and patience, since we realize the results will not come in a day or two,” Passos Coelho, a social democrat leader who, most likely, will head the new government, stated at a press conference dedicated to the victory of his party.
The government’s major challenges will be overcoming unemployment and the expected two percent GDP drop. In addition, a tax hike and the decrease of state payments can lead to strikes headed by trade unions. This can become a serious trial for the new government, taking into account the considerable protest sentiments among the population, which resulted in a few mass street manifestations during the last three months. The high abstention rate (41.1 percent) is one more thing proving this and showing the people’s dissatisfaction with all the political players in the country. On the other hand, analysts presuppose that investors, who have lost confidence in Portugal’s economy of late, will heed the advice of the center-right government.
The economic stability of the entire euro zone will depend on Portugal’s proper fulfillment of its obligations to the EU, since this is already the third country, after Greece and Ireland, to receive substantial external loans. Besides, the Portuguese banking system is closely connected with Spanish and French systems, therefore any instability in this sphere will have a negative impact on the whole region.
Having assured the citizens that he will do everything possible to leave the crisis situation and bring back market confidence, Passos Coelho stated that his main obligation to Portugal was “full transparency and selfless work.”
In the meanwhile, Jose Socrates already congratulated his political opponents on their victory and announced his resignation from the post of the head of the party: “Results are as they are: the Socialist Party lost. But one should say that under the current circumstances we got a decent result. I don’t hide behind the circumstances. This is my failure and I want to undertake full responsibility for it.”
