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Portugal’s Government Ousted in Challenge to Austerity Portugal’s Government Ousted in Challenge to Austerity
(about 9 hours later)
An alliance of left-wing Portuguese lawmakers on Tuesday brought down the government of Prime Minister Pedro Passos Coelho, turning the country’s politics on its head just weeks after inconclusive elections and offering up a strong new challenge to the austerity policies that have divided Europe.An alliance of left-wing Portuguese lawmakers on Tuesday brought down the government of Prime Minister Pedro Passos Coelho, turning the country’s politics on its head just weeks after inconclusive elections and offering up a strong new challenge to the austerity policies that have divided Europe.
Mr. Passos Coelho, a center-right leader, was ousted after lawmakers voted to reject his new government’s program, 123 to 107.Mr. Passos Coelho, a center-right leader, was ousted after lawmakers voted to reject his new government’s program, 123 to 107.
The prime minister had been held up as a model proponent of the belt-tightening prescriptions pushed by European Union officials in Brussels, international creditors and countries like Germany.The prime minister had been held up as a model proponent of the belt-tightening prescriptions pushed by European Union officials in Brussels, international creditors and countries like Germany.
Ahead of the vote, the country’s finance minister had warned members of Parliament that a turnaround in economic policy could have dire consequences at a time when Portugal’s debt continues to be rated as junk by three of the major credit rating agencies.Ahead of the vote, the country’s finance minister had warned members of Parliament that a turnaround in economic policy could have dire consequences at a time when Portugal’s debt continues to be rated as junk by three of the major credit rating agencies.
“If investor confidence is shattered, the threat of bankruptcy is real,” the finance minister, Maria Luís Albuquerque, told lawmakers.“If investor confidence is shattered, the threat of bankruptcy is real,” the finance minister, Maria Luís Albuquerque, told lawmakers.
The warning went unheeded.The warning went unheeded.
Portugal’s conservative president, Aníbal Cavaco Silva, now faces the difficult choice of either asking Mr. Passos Coelho to stay at the helm of a caretaker minority government until new elections can be held next year, or — more likely — allowing António Costa, the leader of the Socialist party, to form an alternative government.Portugal’s conservative president, Aníbal Cavaco Silva, now faces the difficult choice of either asking Mr. Passos Coelho to stay at the helm of a caretaker minority government until new elections can be held next year, or — more likely — allowing António Costa, the leader of the Socialist party, to form an alternative government.
The Socialists and their allies have promised to unwind parts of the austerity program Mr. Passos Coelho had introduced during his first term.The Socialists and their allies have promised to unwind parts of the austerity program Mr. Passos Coelho had introduced during his first term.
In either case, analysts expect Portugal to remain in a fragile political condition and to struggle to meet the deficit and debt targets set by Brussels after a 78 billion euro bailout program Portugal received in 2011. The European Commission, the European Union’s executive body, recently warned Portugal for delaying its 2016 budget plan.In either case, analysts expect Portugal to remain in a fragile political condition and to struggle to meet the deficit and debt targets set by Brussels after a 78 billion euro bailout program Portugal received in 2011. The European Commission, the European Union’s executive body, recently warned Portugal for delaying its 2016 budget plan.
Elected in 2011, Mr. Passos Coelho was the first prime minister to lead a coalition through a full term in office since Portugal’s 1974 revolution and return to democracy. His second term will now be one of the shortest on record.Elected in 2011, Mr. Passos Coelho was the first prime minister to lead a coalition through a full term in office since Portugal’s 1974 revolution and return to democracy. His second term will now be one of the shortest on record.
He and his center-right coalition won national elections on Oct. 4, with just 39 percent of the vote, after putting in place an austerity program credited with arresting the country’s economic slide; restoring some growth and access to financial markets; and bringing down unemployment, which remains about 12 percent.He and his center-right coalition won national elections on Oct. 4, with just 39 percent of the vote, after putting in place an austerity program credited with arresting the country’s economic slide; restoring some growth and access to financial markets; and bringing down unemployment, which remains about 12 percent.
But the majority of votes were spread among parties on Portugal’s long-fractured left who tapped into the deep resent Brussels and the austerity policies have engendered. But the majority of votes were spread among parties on Portugal’s long-fractured left who tapped into the deep resentment of Brussels that the austerity policies have engendered.
A majority of Portuguese, judging by the elections returns, did not experience the benefits of austerity, and they continue to struggle with low wages and widening income disparities. Tax breaks for foreign investors under Mr. Passos Coelho’s government have revitalized pockets of the economy, while other parts have been left behind.A majority of Portuguese, judging by the elections returns, did not experience the benefits of austerity, and they continue to struggle with low wages and widening income disparities. Tax breaks for foreign investors under Mr. Passos Coelho’s government have revitalized pockets of the economy, while other parts have been left behind.
After the election, the Socialist leader, Mr. Costa, managed to broker a rare alliance of left-wing parties who have now united around their opposition to the austerity program.After the election, the Socialist leader, Mr. Costa, managed to broker a rare alliance of left-wing parties who have now united around their opposition to the austerity program.
The deal may allow his Socialist party to lead a new government with support from the Left Bloc, the party that made the biggest gains in the election, and the country’s Communist Party, bringing it in from decades on the sidelines of Portuguese politics.The deal may allow his Socialist party to lead a new government with support from the Left Bloc, the party that made the biggest gains in the election, and the country’s Communist Party, bringing it in from decades on the sidelines of Portuguese politics.
Mr. Costa’s administration would be the first Socialist government supported by radical left parties since Portugal’s return to democracy four decades ago, said Antonio Barroso, an analyst at Teneo Intelligence, in a research note issued Monday.Mr. Costa’s administration would be the first Socialist government supported by radical left parties since Portugal’s return to democracy four decades ago, said Antonio Barroso, an analyst at Teneo Intelligence, in a research note issued Monday.
“The probable consequences of this experiment are far from clear-cut, but they are likely to be mostly market-negative,” Mr. Barroso said.“The probable consequences of this experiment are far from clear-cut, but they are likely to be mostly market-negative,” Mr. Barroso said.
While the two smaller left-wing parties have dropped most of their most radical pre-election demands, including a restructuring of Portugal’s debt with international creditors, a new Socialist-led government is still expected to challenge the austerity orthodoxy.While the two smaller left-wing parties have dropped most of their most radical pre-election demands, including a restructuring of Portugal’s debt with international creditors, a new Socialist-led government is still expected to challenge the austerity orthodoxy.
The left-wing parties have pledged to cut some taxes and reverse public-sector wage cuts that Mr. Passos Coelho had introduced. They also plan to suspend Portugal’s privatization program, which could create particular tensions over what to do with Novo Banco, the bank that was salvaged from the fraud-tainted collapse of the Espírito Santo business empire last year.The left-wing parties have pledged to cut some taxes and reverse public-sector wage cuts that Mr. Passos Coelho had introduced. They also plan to suspend Portugal’s privatization program, which could create particular tensions over what to do with Novo Banco, the bank that was salvaged from the fraud-tainted collapse of the Espírito Santo business empire last year.
But a left-wing alliance may itself face its own challenges, and its own longevity and stability is by no means assured.But a left-wing alliance may itself face its own challenges, and its own longevity and stability is by no means assured.
Pedro Magalhães, a researcher at the Institute of Social Sciences in Lisbon, suggested before Tuesday’s vote that a left-wing administration could struggle to last a full mandate given the longstanding divergences and different incentives of the three parties.Pedro Magalhães, a researcher at the Institute of Social Sciences in Lisbon, suggested before Tuesday’s vote that a left-wing administration could struggle to last a full mandate given the longstanding divergences and different incentives of the three parties.
In particular, the Left Bloc is a less centralized party, “with a volatile electorate and aspirations of growth within the left,” he said. “I think their role in government survival introduces particular uncertainty.”In particular, the Left Bloc is a less centralized party, “with a volatile electorate and aspirations of growth within the left,” he said. “I think their role in government survival introduces particular uncertainty.”
The political turmoil in Portugal is being closely watched elsewhere in Europe as a bellwether of political trends and an indicator of whether even countries that had been models of austerity prescriptions are now experiencing fatigue with the belt-tightening nearly seven years after the onset of Europe’s debt and euro crisis.The political turmoil in Portugal is being closely watched elsewhere in Europe as a bellwether of political trends and an indicator of whether even countries that had been models of austerity prescriptions are now experiencing fatigue with the belt-tightening nearly seven years after the onset of Europe’s debt and euro crisis.
Particularly wary is the conservative government of Prime Minister Mariano Rajoy in neighboring Spain, which has also been a strong proponent of austerity but has faced similar complaints about its spending cuts from Socialist opponents and others.Particularly wary is the conservative government of Prime Minister Mariano Rajoy in neighboring Spain, which has also been a strong proponent of austerity but has faced similar complaints about its spending cuts from Socialist opponents and others.
Mr. Rajoy faces elections on Dec. 20, when polls so far indicate that his conservative Popular Party may lose what has been an ironclad majority in Parliament, with the potential to leave the Spanish in a similar position to the Portuguese.Mr. Rajoy faces elections on Dec. 20, when polls so far indicate that his conservative Popular Party may lose what has been an ironclad majority in Parliament, with the potential to leave the Spanish in a similar position to the Portuguese.