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The Portuguese general election will take place on Sunday 4 October. It may well deliver an inconclusive outcome, with neither the centre-right governing coalition nor the Socialist Party securing an absolute majority in the Portuguese parliament. A primer by our policy analyst Vincenzo Scarpetta.
1 October 2015
Portugal, the ‘forgotten man’ of the Eurozone crisis, is set to come under the spotlight on Sunday – when general elections will take place. The centre-right governing coalition, formed by the Social Democratic Party (PSD) of Prime Minister Pedro Passos Coelho and the People’s Party (CDS-PP) of Deputy Prime Minister Paulo Portas, is running as a joint ticket called ‘Forward Portugal’ (Portugal à frente, PaF). The other main contender is the Socialist Party (PS) led by António Costa.
Other parties set to gain seats in the Portuguese parliament are the Democratic Unitarian Coalition (CDU) – an alliance comprising the Portuguese Communist Party and the Green Party – and the Left Bloc (BE). Livre, a new left-wing movement with some similarities to Podemos, founded by former Portuguese MEP Rui Tavares, will very likely struggle to enter parliament.
The centre-right coalition has taken the lead in opinion polls over the summer, helped by the improved economic outlook but perhaps also by the outcome of the negotiations between Greece and its lenders.
However, these numbers also suggest that neither the centre-right coalition nor the Socialist Party are likely to win an absolute majority of the 230 seats in the Portuguese parliament. This would lead to more uncertain post-election scenarios. Another important aspect to bear in mind when looking at these polls is the share of undecided voters – as high as 26%, depending on the pollster.
If opinion polls are spot on and the centre-right coalition wins this election without an absolute majority, it could try to form a minority government. This would, however, only be viable if the Socialist Party agreed to at least abstain in a number of key votes – starting with the investiture of the new cabinet and the 2016 budget. Costa has already said that his party would vote against the latter.
The alternative could be a pact between the Socialists and the other left-wing parties – either in the form of a fully-fledged coalition or of a minority Socialist government with the external support of the Communist Party, the Greens and the Left Bloc. Easier said than done. These parties are all running on much more radical platforms than the Socialist Party – including the renegotiation of Portugal’s public debt, scrapping the EU’s fiscal treaty on budgetary discipline and, as far as the Communist Party is concerned, euro exit. In spite of his anti-austerity rhetoric, Costa is clearly not prepared to go that far.
My impression is that Portuguese President Aníbal Cavaco Silva, who will have to designate the new Prime Minister, may face a difficult task. Should he fail to broker a workable deal, Portugal could be in for a period of relative political instability – which would end up hampering the reform process and the economic recovery.
One thing is certain: the next Portuguese government will have no shortage of things to do. Portugal returned to growth last year, when its GDP rose by 0.9%. The European Commission expects the Portuguese economy to grow by 1.6% this year and 1.8% next year – almost bang on Eurozone average.
Public deficit has been reined in from 7.4% of GDP in 2011 to 4.5% of GDP last year (excluding the cost of the state rescue of Banco Espírito Santo), and is foreseen to come down to somewhere around 3% of GDP by the end of this year. After peaking at over 16% in 2013, unemployment is also falling and stood at 12.4% at the end of August.
However, other indicators are less encouraging. Under the incumbent government, public debt has kept increasing – going from 111% of GDP in 2011 to over 130% of GDP in 2014. As of this year, it is expected to start falling – but really slowly. In fact, the IMF believes it will still be above 118% of GDP in 2020. Corporate debt has begun to decrease, but is still among the highest in the EU. The country’s Net International Investment Position (NIIP) has also worsened compared to when Passos Coelho entered office in 2011 (see here for Eurostat data).
Youth unemployment is still nearing 32%. Perhaps even more worryingly, Portugal has experienced negative net migration since 2011 – when the country requested the EU/IMF bailout – combined with a steeper rise of the old-age dependency ratio over the same period of time (see graph below).
Although no exact breakdown of who has been leaving the country is available, this seems to suggest young Portuguese are the most likely to be packing their bags to look for better opportunities abroad. Bringing them back will be a key challenge for the next government.
The centre-right coalition and the Socialist Party are both firmly committed to Eurozone membership and are strongly in favour of more Eurozone integration.
In its election manifesto, the coalition has pledged to stick to an ambitious deficit and debt reduction path – while at the same time gradually rolling back some temporary austerity measures passed over the past couple of years and affecting public sector wages, pensions, and income taxation. The manifesto also mentions the possibility of introducing a German-style ‘debt brake’ in the Portuguese Constitution. Furthermore, the coalition has said it will continue with labour market and public administration reform, and will further cut red tape and tax for business.
The Socialist Party has been very critical of austerity, blaming it entirely on Passos Coelho’s government and not the Troika – not least because it was the Socialist government of José Sócrates who called the Troika in back in 2011. However, I cannot see Costa staging an anti-austerity revolt on his own in Brussels. In fact, the Socialist Party’s election manifesto includes a clear commitment to keeping public finances in order.
That said, the Socialist Party looks far less keen than the centre-right coalition on further reform of the labour and product markets. It would definitely also push for slower deficit reduction and greater ‘flexibility’ in the enforcement of Eurozone fiscal rules – broadly in line with what François Hollande and Matteo Renzi are already doing, more or less successfully. This would shift the balance slightly and put a bit more pressure on Angela Merkel and the other supporters of stricter budget discipline within the Eurozone.
It goes without saying that a Socialist government with the backing of the more radical left-wing parties would turn Portugal into a bigger headache for Brussels.
On the margin, a victory for the centre-right coalition would likely be helpful for David Cameron’s EU renegotiation. It would ensure the continuity of a government that is instinctively more sympathetic than the Socialist Party to a number of liberalising reforms the UK wants to see in Europe.
But when it comes to the more substantive items on Cameron’s EU reform agenda, both the centre-right coalition and the Socialist Party consider EU free movement as a ‘red line’. A centre-right government would probably be more willing to listen to British proposals to reform the rules on EU migrants’ access to welfare – as long as such changes are not seen as damaging Portuguese citizens living in the UK, as Passos Coelho himself said during a joint press conference with Cameron at the end of August.
Given the huge importance both the centre-right coalition and the Socialist Party give to further Eurozone integration, it will also be crucial for Cameron to make sure that his plans to strengthen the safeguards for non-Eurozone countries are not perceived as preventing Eurozone countries from establishing closer ties among themselves – as Open Europe argued in a recent paper.
@lsmlpp @Bern_L Orgulhosamente sós na gaiola dourada
No chance Costa will vote down budget...he'd get snap vote and would likely lose "@OpenEurope: #Portugal elex openeurope.org.uk/blog/all-you-n…"
@kwykwyk @OpenEurope @LondonerVince hope your right but im not so sure he wouldn't
"@1ens: @kwykwyk @OpenEurope @LondonerVince hope your right but im not so sure he wouldn't" he might not even survive the night!
@kwykwyk @OpenEurope @LondonerVince not voting for budget was ex libris of campaign. He would probably look left for some partners
@1ens @OpenEurope @LondonerVince maybe, but he softened at the end. Portuguese prefer stability over ructions, most of the time
@kwykwyk @1ens @OpenEurope @LondonerVince hope so..
@kwykwyk @OpenEurope @LondonerVince Thankfully Portuguese usually look for stability + your right Socialists are not radical here
@kwykwyk @OpenEurope @LondonerVince just dont understand what credibility he could hope 2maintain if he goes back on that. Political suicide
@1ens @OpenEurope @LondonerVince worst thing would be 6 months of snap elec/budget battles
@1ens @OpenEurope @LondonerVince won't have much cred anyway if he loses big. Can fall on his sword elegantly, for the good of the country
@kwykwyk @OpenEurope @LondonerVince indeed worts outcome, don't even mention that!
@kwykwyk @OpenEurope @LondonerVince would B the 2nd consecutive socialist leader to do so. They need motivate/gather core voters this time
@1ens @kwykwyk @OpenEurope @LondonerVince headache that would be. Budget bitching not good. CDU, BE, PS all ganging up.. Populism!!
@1ens @OpenEurope @LondonerVince no Corbyn in the wings in Lisbon ... The further left here stays in their 10% playpen
@kwykwyk @OpenEurope @LondonerVince wondering if socialist party could recover from two major defeats from 2 dif leaders?
@1ens @OpenEurope @LondonerVince well, Seguro was clearly cannon fodder. Costa was the shining hope... This was totally his to lose
@kwykwyk @OpenEurope @LondonerVince both true!
Douglas Murray has an interesting article in the Spectator to the effect that "Euroscepticism is growing throughout the EU.
It will be interesting to see if this generalisation applies to Portugal.