Portugal Other


New government seeks parliamentary support to manage bailout

Pedro Passos Coelho from the centre-right Social Democratic Party (PSD, Partido Social Democrata) won the legislative elections held on 5 June by a wide margin, but failed to win an overall majority. The PSD gained 105 seats out of 230, while the opponent Socialist Party (PS, Partido Socialista) from the current caretaker Prime Minister Jose Socrates reached a record-low 73 seats. The PSD will seek the support of 24 member of parliament from the conservative Democratic and Social Centre - People's Party (CDS-PP, Centro Democratico e Social - Partido Popular) in order to have a solid majority. The new coalition will be responsible for managing the rescue package and implementing the necessary austerity measures. Nevertheless, Pedro Passos Coelho has already vowed to go beyond the EU-IMF programme and pledged to speed up privatizations to restore international confidence in the country's public finances. Prior to the elections, on 16 May, Eurozone finance ministers approved a bailout of EUR 78 billion (USD 111 billion) for the next three years, along with austerity targets and privatisation plans. The European Union will provide two thirds of the loan, with the remainder coming from the IMF. Ironically, the agreement calls for the implementation of the same austerity measures submitted by former Prime Minister Jose Socrates in March. However, back then, parliament rejected the bill, prompting Socrates' resignation. The three-year plan includes spending cuts in the country's pension system and substantial revenue increases via higher taxes. In the first four months of this year, the public sector deficit declined to EUR 1.5 billion (USD 2.3 billion) from EUR 3.7 billion (USD 5.0 billion) in the same period the year before, as tax revenue increased 16.2% while expenditures declined 1.6%. The new government will have to table detailed austerity measures and meet several reform deadlines before the meeting between the EU-IMF authorities and Portugal scheduled for the end of July. According to the aid plan, Portugal has committed to reduce its fiscal deficit from 5.9% of GDP in 2011 to 4.5% of GDP in 2012 and 3.0% of GDP in 2013.

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