Portugal follows Europe’s trend

Portuguese voters have thrown out their Socialist government and opted for a centre-right administration in a trend seen throughout Europe since the global financial and economic crisis erupted three years ago.

The defeat of Socialist Prime Minister José Sócrates – whose party suffered its worst result in 24 years – means there are now only five out of 27 EU member states with centre-left or Socialist-led governments, namely Spain, Greece, Cyprus, Austria and Slovenia.

Should Spain’s ruling Socialists be defeated in next year’s elections, as is widely expected, that would leave the EU with only four centre-left prime ministers, representing four per cent of the EU’s half a billion citizens.

The Portuguese Socialists are yet another left-wing casualty of Europe’s economic crisis in which voters have opted for centre-right parties as a “safe pair of hands” option, rather than putting their trust in Socialist parties to reform Europe’s social market economy and sort out fiscal deficits.

The centre-right trend began with the European Parliament elections in June 2009, at the height of the global financial crisis, in which the Socialist bloc was expected to do well. Instead, Europe’s Socialists suffered a huge defeat and lost up to 25 per cent of their seats. The only exceptions to this trend were the Socialist parties in Malta, Greece, Sweden and Slovakia.

In these elections two years ago it was the centre-right that benefited, which means voters had more confidence in these parties’ ability to manage the economic crisis, steer Europe towards recovery and defend a European-style system of capitalism.

Since then, centre-right parties have won national elections in Germany, Britain, Poland, the Netherlands, Sweden, Slovakia, Ireland and Hungary. The only exception to this swing to the centre-right was Greece, which elected a Socialist government in October 2009, and which has had to be bailed out by the EU and IMF due to its massive budget deficit.

Portugal’s struggling economy coupled with a painful €78 billion EU and IMF bailout meant that the governing Socialists had little chance of re-election. The centre-right Social Democrat party (PSD) led by Pedro Passos Coelho won 39 per cent of the popular vote, while the Democratic Social Centre (CDS-PP) party, its ally, won 12 per cent of the vote.

Together they are expected to have a comfortable majority in the 230-seat Parliament. Both these parties belong to the European People’s Party, and Mr Passos Coelho will become the EPP’s 17th EU Prime Minister.

The task ahead for the incoming Portuguese government will certainly not be easy. A recent Bank of Portugal report warned of “particularly severe” economic hardship over the next two years with an “unprecedented” drop in family income.

However, Prime Minister-designate Passos Coelho has said he is even prepared to go beyond the country’s Portugal’s €78 billion bailout agreement to restore market confidence in the economy, something which is bound to cause further unrest in the country.

Both Sócrates and Passos Coelho had accepted the basic conditions imposed by the EU and the International Monetary Fund for Portugal’s bailout. These include major cuts to public spending on health, education and pensions in a country with faltering economic growth and 11 per cent unemployment, as well as a credit rating that is the second worst in Europe after Greece.

However, a snap election had to be called because Sócrates failed to get approval for further austerity measures through Parliament.

The fact that the soon-to-be-formed centre-right Portuguese government will have a solid parliamentary majority is definitely a good thing after two years of a minority Socialist administration which had to deal with the country’s unprecedented economic crisis.

The new coalition government will certainly bring about some much-needed stability in Portuguese politics, something which is greatly needed considering the huge economic challenges ahead.

Besides facing trade union opposition to his severe austerity measures Passos Coelho also faces potential problems in trying to amend Portugal’s constitution to allow labour market reforms, which requires a two thirds majority in Parliament. This means that he will need the support of the opposition Socialist Party, which cannot be taken for granted, especially if the party elects a more left-wing leader than Socrates.

Passos Coelho certainly knows he will face obstacles as he takes office but his priority is to swiftly implement the reforms agreed to with the EU and the IMF. Soon after his victory he remarked: “Life will be difficult. But Portugal will return to economic growth and prosperity in two or three years.”

The incoming Prime Minister will have to do everything possible to calm the markets, get off to a good start and give out a loud and clear message that he is serious about reforming the economy.

He has already announced that his government will create an independent budget authority with “broad powers” as part of the battle to clean up Portugal’s public finances, and this has been generally welcomed. Passos Coelho now needs to appoint competent people to his Cabinet and his choice for Minister of Finance will be particularly important, especially since the Prime Minister-elect has no executive experience.

Perhaps Passos Coelho’s most essential task is to convince the Portuguese people that the economy’s structural reforms are greatly needed, even if in the short term the economic situation gets worse.

This won’t be easy, especially when one considers that only 60 per cent of the electorate voted in the election. Coelho will need all the goodwill he can muster in his new task ahead.