Leftist parties take power in Portugal after ousting coalition

Incoming coalition vows that it will ‘stay on the path of fiscal consolidation’

A Socialist government supported by the far left is set to take power in Portugal after defeating a short-lived minority centre-right administration in a parliamentary vote on its policy programme.

The "rejection motion", approved by 123 votes to 107, sparked the fall of the fiscally conservative government led by Pedro Passos Coelho, the prime minister who steered Portugal through a painful bailout, less than two weeks after it took office.

President Aníbal Cavaco Silva is expected to appoint António Costa, the Socialist Party (PS) leader, to form a new government. "The will of parliament has been made clear. It now falls to the president to act," Mr Costa said.

The vote was the culmination of two days of acrimonious debate as rival groups demonstrated outside parliament. Paulo Portas, deputy prime minister, said the left-wing government, although "mathematically possible" was "politically illegitimate".

Different speed

According to the man expected to become the country’s next finance minister, a PS government supported by the radical Left Bloc (BE) and hardline Communist party (PCP) would not “throw money at the economy” to stimulate growth. “We will stay on the path of fiscal consolidation,” Mário Centeno, a PS member of parliament and a former Bank of Portugal economist, told the

Financial Times

in an interview. “It’s not the direction we challenge, but the speed of travel.”

Mr Passos Coelho was reappointed after his centre-right coalition emerged from the country’s October 4th general election as the largest force, but lost its outright majority.

The prospect of a PS government assured of majority support from the radical BE and hardline PCP battered shares in Portuguese banks this week and saw government borrowing costs hit a five-month high.

But Mr Centeno, a Harvard-trained academic and the main architect of the left-wing alliance’s economic programme, said the notion he was planning “a pure and simple stimulus of domestic demand” was wrong. “It’s not easy to reduce our approach to two or three slogans,” he said. “We will continue to bring down the deficit and debt, but at a slower pace.”

What had happened in the stock market and to government bond yields had little to do with the PS programme but rather reflected “the fragility of Portugal’s financial system”, which Mr Passos Coelho had “failed to resolve”, he said. – Copyright The Financial Times Limited 2015