Portugal Politics


Coelho reappointed PM with minority rule; country's political and economic future in limbo

Conservative Pedro Passos Coelho was nominated for his second term as Prime Minister by President Cavaco Silva on 22 October almost three weeks after no clear winner emerged from the 4 October general elections. As the Coelho-led center-right coalition Portugal Ahead (PaF) failed to gain a parliamentary majority, Coelho is now confronted with the challenge of forming a workable minority government and garnering sufficient parliamentary support for his party’s program, which must be presented by early November. The threat of several opposition parties, including the moderate-left Socialist Party (PS), not passing the minority coalition’s government program has generated uncertainty about Portugal’s future political and economic direction. The heightened probability of legislative paralysis and early elections should the new minority government not survive increase the risk that Portugal may be derailed from its fragile economic recovery track.

The election results confirmed that the PaF coalition, led by Pedro Passos Coelho, is still the leading political force in the country. It won 107 of the 230 seats of the Assembly of the Republic, which represented a loss of 25 seats over the previous elections in 2011 and fell short of the 116 seats necessary for a majority. The moderate-left Socialist Party (PS) led by António Costa lost its bet of winning the elections with an overall majority, but still performed strongly compared to previous elections, earning 12 more seats; the party now has a total of 86 seats. The surprise winner of these elections was the radical-left Left Bloc (BE) party, which campaigned on anti-austerity and anti-European grounds and won over 10% of the votes, earning a total of 19 seats (11 more than in the previous elections).

Following the PaF’s loss of its majority, Costa rejected PaF’s offer to form a coalition government on 19 October, which put the right wing in a critical position. The following day, Costa unexpectedly stated that the Socialist Party was ready to form a majority left-wing coalition as it secured the backing of the BE, the Communists and “The Greens”. Detailing their agreement, Coelho affirmed that while the coalition would keep its party’s moderated pro-European stance, it intends to reverse austerity measures such as public sector salary cuts and frozen pensions. After the nomination of Coelho as PM on 22 October, these opposition parties called to reject any government program that holds up austerity measures. Should Coelho fail to get sufficient backing to pass his party’s government program, President Silva could either appoint Costa as PM or install an incumbent PM as caretaker until new elections are held. The following days and weeks will determine much of Portugal’s political direction, although uncertainty about this and the country’s economic future will be rife in the meantime.

The Bank of Portugal expects the economy to expand 1.7% in 2015 and 1.9% in 2016. The panel of analysts we surveyed for this month’s Consensus Forecast left their 2015 GDP growth forecast unchanged at 1.6%. For 2016, the panel foresees the economy growing at a slightly-higher 1.8%.

Author:, Economist

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