Portugal centre-right to face bailout test after election win

Portugal’s future Prime Minister prepared swift reforms yesterday as demanded by the EU and IMF in exchange for a €78 billion bail-out after the right won a comfortable majority in Parliament in snap polls.

The leader of the centre-right Social Democrats, Pedro Passos Coelho, vowed to start enacting the bailout deal “as soon as possible” in his victory speech late on Sunday, adding he was willing to impose more austerity measures to ensure Portugal does not become a “burden” to its creditors.

“There are many difficult measures which are programmed and which will be adopted,” he told reporters yesterday as he left his home in suburban Lisbon a day after his PSD defeated the ruling Socialists, in power since 2005.

“All Portuguese people will need much courage in the coming years and I am certain they will have it.”

The PSD won 105 seats in the 230-seat Parliament against 73 for outgoing Prime Minister Jose Socrates’s Socialists, with only the results of votes cast abroad, which select four seats in Parliament, left to count.

Mr Passos Coelho said he would immediately seek to form a coalition government with the smaller, conservative CDS-PP party – which captured 24 seats – “that will provide stability during the next four years”.

The two parties together have an absolute majority of 129 seats in Parliament. They last governed together in a coalition between 2002 and 2005.

It will be the first time since Portugal returned to democracy in 1974 after four decades under dictatorship that both Parliament and the presidency are in the control of right-leaning parties.

The bailout deal reached last month imposes tight deadlines to impose deep spending cuts and wide-reaching economic reforms aimed at reviving growth and reining in a public deficit that hit 9.1 per cent of output last year.

The terms were negotiated in a hurry, without waiting for the outcome of the early election sparked by Mr Socrates’ resignation in March after Parliament rejected his minority government’s latest package of austerity measures.

Despite his determination, Mr Passos Coelho will only be sworn in at the end of June or early July, after the final election results are published on June 15.

That gives him just a few weeks to prepare for the first visit to Lisbon by a team from the so-called “troika” – the EU, IMF and European Central Bank – to evaluate the progress that has been made in implementing the bailout programme.

By then the new government will need to have decided what austerity measures to put in place to offset the “significant” reduction in corporate social security contributions called for in the agreement to make firms more competitive.

It will also have to find a buyer for nationalised bank BPN and give up its so-called “golden shares” in listed companies such as former state monopoly Portugal Telecom.

During the second half of the year, Parliament must vote for a new package of austerity measures for 2012 as well as key structural reforms to dynamise an economy that has posted sluggish growth for a decade and is expected to shrink by around two percent this year and the next.

To curb the rise in the nation’s public debt, which hit €160 billion in 2010, the equivalent of 93 per cent of GDP, the government will have to speed up the pace of its privatis-ations, starting with the sale of TAP-Air Portugal and its stakes in power firm EDP and power grid operator REN.

Mr Passos Coelho campaigned on a promise to “go beyond” what is required by the bailout deal in terms of privatisations and economic reforms.

His election was welcomed yesterday by financial markets.

“In our view this is a positive outcome as a majority government is a necessary condition to the success of the EU/IMF programme,” Antonio Garcia Pascual, chief southern European economist at Barclays Capital, wrote in a research note.