Lisbon’s impasse

Portugal is the second country after Greece to see the emergence of a so called “government of the Left”, made up of anti-bailout forces, challenging the austerity recipe dictated by the EU and the other creditors. For several weeks following the national elections of October 4th, Lisbon had been in political turmoil, that was more or less used by the old forces in power as a pretext to justify developments deemed nearly a political coup d’état.

At the same time, the prospect of anti-austerity parties coming to power in another Mediterranean country unsettled the EU establishment, despite the clear assurances provided by Portugal’s new socialist prime minister, Antonio Costa. The fact his pledge was amplified by the minor partners’ concessions with regard to crucial matters – such as public debt write-off and eurozone membership – did little to assuage the conservative bloc or Brussels whatsoever.

Feeble recovery

Although Portugal has formally completed its bailout programme since November 2014, the reforms and cuts it entailed remain in place, while the economy’s figures hardly show substantial improvement. Unemployment is still around 12-13% and youth unemployment exceeds 30%. According to IMF forecasts, the country will achieve a frail growth rate of 1.6% for 2015, with a deficit of 3.1% and its public debt at 130% of GDP (which is 10 percentage points over the rate Greece’s debt was when it was subjected to its first bailout programme in 2010).

Furthermore, the November figures from the statistical agency of Portugal (Instituto Nacional de Estatística) show persistently negative consumer confidence (-13.7), manufacturing industry confidence (-3.8), construction/public works confidence (-39,7) and trade confidence (-0.1) indicators. The trend was similar in previous months, explained by INE as a result of “the negative contribution of the unemployment perspectives and of the perspectives of the country’s economic situation”. 

It should also be always considered that, since 2011, about 500,000 Portuguese have immigrated (approximately 5% of the population), according to official figures, due to the economic crisis and high unemployment.

The message of the elections

In such a gloomy economic climate, it is no surprise that the Portuguese did not grant absolute majority to any single political party. The election result indicated what can be seen as an “anti-austerity shift” of the people, as well as great frustration for the political system. Abstention reaching 43% certainly points to that.

  • The centre-right alliance Portugal à Frente (PàF), consisting of the social democratic party (PSD) of Pedro Passos Coelho and the conservative People’s Party (CDS-PP), received 38.6%, that is 11.8 points fewer than in 2011.
  • The socialists (PS) of Antonio Costa greatly capitalised on the people’s discontent against austerity policies, receiving 32.4%.
  • The Left Bloc (BE), under Catarina Martins, made significant gains, receiving 10.2% and 19 seats in parliament, counter to 5.2% it received in the last national elections.
  • The Democratic Unity Coalition, led by the secretary-general of the Portuguese Communist Party (PCP), Jerónimo de Sousa, emerged slightly bolstered, receiving 8.3% and 17 seats.

From the first moment, it was obvious that PàF’s 107 seats (of a total 230 in parliament) have been not enough for a government formation. Coelho was not able to form a government, despite his potent endorsement by external stakeholders, such as the European Commission president Jean-Claude Juncker and the German finance minister, Wolfgang Schäuble, who rushed to interpret the election result as a desire of the Portuguese to “continue the path of reform”.

The socialist conformance

Although the PS did not actually win the election, as several polls had suggested, it was quick to reject the prospect of a coalition with the conservatives and chose to negotiate with the leftists and communists instead. Indeed, the three parties have obtained majority, with 122 seats total. This was not unexpected, since Costa had explicitly promised a socialist agenda, with increases of spending in education and health, a raise in wages of public employees, revision of the privatisation plans and revocation of other unpopular measures.

In order to ensure overthrowing of Coelho’s regime and avert being criticised for missing the opportunity given for a united Left, the BE and CDU accepted Costa’s proposal and buckled under with regard to reviewing eurozone membership and debt renegotiation. Still, it was Costa himself who was first to affirm – in a statement to the Financial Times – that a government led by his party would not doubt Portugal’s commitments in the eurozone and the Fiscal Pact. Instead, it would merely pursue “an intelligent and flexible reading of the fiscal pact”. In fact, “Europe can rest easy, the Socialist Party is not Syriza”, he told AFP “in a bid to reassure investors”, the agency added.

Similar language was expressed by Carlos Cesar, the head of the Socialists’ parliamentary group, who highlighted that the tripartisan agreement would respect “Portugal’s international commitments”. Besides, it was the PS that, back in May 2011, more or less adhered to those commitments, signing the country’s bailout agreement, under Costa’s predecessor, the former prime minister José Sócrates.

The president’s dangerous stunt

Surprisingly, the Socialists’ conformity to the EU treaties, the public debt status and the common currency was not enough to appease the markets, the country’s creditors and officials, for example, in Brussels and Berlin. Leaders such as Spain’s Mariano Rajoy and Germany’s Angela Merkel did not hide their concern against the scenario of an anti-austerity government. The Portuguese bonds yield rose as well, triggering rumours (or warnings) that the country could even be suspended from the bond-buying programme of the ECB. “Europe is watching and is very concerned. Having just stabilised Greece and heavily distracted by migrants, the last thing Europe needs is a crisis in the south”, Mujtaba Rahman of risk consultancy Eurasia Group told FT in October.

Nevertheless, the sharpest reaction had come from the president of Portugal himself, Aníbal Cavaco Silva, who – on 22 October – during the ongoing talks among the parties, appointed Passos Coelho as prime minister. In an astonishingly wry speech, Silva justified his decision saying that “it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets, placing in question the Country’s external trust and credibility”. Although he acknowledged that “the winning coalition cannot fully ensure the political stability that the Country requires”, he considered “that the financial, economic and social consequences deriving from a clearly inconsistent alternative suggested by other political factions, to be greatly worse […]”.

“In 40 years of democracy, the Portuguese governments never depended from anti-European political factions”, he said, deeming “this the worst moment to radically change the bases of our democratic regime”.

Silva’s dash was largely seen as a reminder of the not-so-faded memories of Salazar’s dictatorship, mainly because it failed to discern the message of the electorate, asking for change, all whilst it is Constitutionally challenging. Constitutional law experts and professionals, such as Jorge Miranda, suggested that it’s not within the president’s authority to assess governmental agendas, a task that falls to the responsibility of the parliament. According to a short survey of the daily Publico, most experts hold the view that the mandate should be allowed to Antonio Costa, justified by the majority obtained with the support of the two minor left parties. “The president should not act as a factor of instability”, they said, “nor intervene in the work of other sovereign institutions, such as the parliament in this case. It is not his job to determine which party is ‘good’ and which ‘bad'”.

Risking political uncertainty

Provided that Portugal’s Constitution does not allow new elections until six months have passed since the last one, there were two options. Either president Silva would finally have to give the mandate to the left parties, or let Coelho as caretaker prime minister until June 2016, when new elections would be possible.

Hence on 10 November, during the presentation of Coelho’s programme, the Socialists and the two minor left parties managed to overthrow his government in a no confidence vote. Earlier, they had already backed the socialist Eduardo Rodrigues for president of the Assembly. Fernando Negrão, Coelho’s minister of justice himself, admitted that his cabinet’s tenure would be short-lived, in sight of its failure to lure any socialist deputies.

“The power of hope”

It is not uncommon for the european Press to regard the Left Bloc as a sister-party of the Greek SYRIZA, not least because typically there is mutual support. However, what is less known is that the issue of currency is not taken for granted in the party, while the path of compromise with the creditors is not seen as the only available choice. A strong indication to this is that the three parties, PS, BE and CDU have a principal agreement, in which the two latter do not actually participate as government partners (including the appointment of ministers), but they rather offer a vote of tolerance. Costa affirmed that, at any given time, if these parties disagree, they can withdraw their support.

Ostensibly, one of the “red lines” the Left Bloc set in order to support a socialist-led government was an increase in pensions, a move that directed Costa to promise a 0.3% rise instead of a “freeze”. In fact, this was covered by the trilateral agreement in a “transparent manner, without ambiguous language”, as Martins stressed. Moreover, another party official, Fernando Rosas, has revealed – during an interview with the French weekly Regards – that “we have made our conclusions from the Greek case, that it’s impossible to follow an anti-austerity policy within the constraints of the eurozone”. The Left Bloc’s intention is “not to make Tsipras’s mistake of getting into negotiations without a Plan B. But we don’t want to publicly criticise SYRIZA. Our official position is that we must be ready to leave the euro if negotiations over the debt come to nothing. Our position has to be presented in a very pedagogical fashion because the Portuguese are very attached to Europe and the euro”.

On its part, the Communist Party of Portugal appeared determined to support a socialist-led government, even if convergence on a joint programme remains elusive; what is important for the party though is to “ensure Portugal’s right for a nationally sovereign growth”.

As Martins noted, it was the “power of hope” that led the Portuguese not to fully support the previous administration; this had a ripple effect along the european conservative forces, from Berlin to Brussels, even Washington. The troika and creditors apparently hoped that SYRIZA’s concessions in Greece would translate into an electoral defeat of the purported anti-austerity groups everywhere.

Undoubtedly, within BE and CDU, even the PS, there are people who realise that any attempt to apply a sovereign economic policy would be perceived by the creditors as unilateral action. The Portuguese Left exercises power since the 25th of November and has already been under pressure to maintain several levies introduced under the bailout programme. Time will show whether it’s going to capitulate or honestly face the upcoming political deadlocks, perhaps opening the way for further rift with the creditors and major political developments.

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