President Coelho Keeps Post But Instability Looms

Portugal: At the beginning of October, Portugal’s Pedro Passos Coelho became the first eurozone prime minister to survive a bailout program and win reelection.

However, Passos Coelho’s victory was tempered by the fact that, with less than 40% of the votes, his center-right coalition won a plurality but not a majority. The election also saw a disappointing show by the Socialist Party, the main opposition, and the ascendance of the more radical, anti-austerity Left Block.

As a result, the makeup of the next Portuguese parliament is bound to create more than one headache for the prime minister, especially in light of his country’s continued economic fragility.

“Essentially, you have a risk of instability in the medium term,” says Antonio Barroso, a London-based senior analyst for Teneo Intelligence. “Passos Coelho will always have to negotiate his agenda on a case-by-case basis.”

Squeezed between a prime minister looking to compromise and a strengthened Left Block is the Socialist Party of António Costa. “The most likely scenario going forward is that the ruling coalition will try to get a minimum level of support, or the abstention, of the Socialists in exchange for softening some of the lines in its policy program,” says Barroso. “At the same time, the success of the Left Block is likely to put pressure on the Socialists not to cooperate with the government as it would hurt them in the polls.”

Given the complicated post-election math, it is hard to predict precisely what the new Portuguese government will be able to accomplish. Though the economy has been recovering, unemployment remains high, and people are still reeling from tough measures used to bring ballooning deficits and a sky-high public debt under control.

“The new government’s priority should be social problems,” says José Palmeira, professor of political science at the University of Minho in Portugal, “to boost the economy, to lower unemployment and to slow down emigration.” Passos Coelho has said he wants to bring income taxes, which were raised during the crisis, and salaries of public employees, which were cut, back to pre-bailout levels. This will have to be done in accordance with eurozone rules.

Passos Coelho has his work cut out for him, with the shadow of early elections dogging his every step.