Portugal's Socialists to take power, backed by radicals

AP News
Posted: Nov 24, 2015 7:57 AM
Portugal's Socialists to take power, backed by radicals

LISBON, Portugal (AP) — Portugal's president announced Tuesday he is inviting Socialist Party leader Antonio Costa to form a government backed by the Communist Party and radical Left Bloc, despite doubts over those parties' commitment to the economic goals of the eurozone.

President Anibal Cavaco Silva made the announcement in a statement on his website, ending weeks of uncertainty over the eurozone country's political future.

Costa's Socialists headed an anti-austerity alliance of leftist lawmakers that two weeks ago unseated a center-right government that had been in power for 11 days. That government had over the past four years introduced spending cuts and economic reforms following Portugal's 78 billion-euro ($83 billion) bailout in 2011.

The Communists and Left Bloc have pledged to vote with the Socialists in Parliament, ensuring its legislation passes. Some fear Portugal will abandon the fiscal discipline demanded of countries sharing the euro currency, but Costa insists he will abide by international agreements, including government spending limits. However, he criticized the outgoing government for being "submissive" in its dealings with the rest of Europe.

Although they are supporting it, the Communists and Left Bloc aren't expected to join the new government — Portugal's seventh in 15 years.

Portugal emerged as one of the eurozone's weak links during the 19-nation bloc's financial crisis. It was undermined by a decade of average annual growth below 1 percent while record low interest rates invited it to borrow wealth it hadn't created.

Four years of austerity have improved its economic statistics. Portugal's budget deficit in 2010 was more than 10 percent but the European Union estimates it will be around 3 percent by the end of this year. Unemployment, which surged to a record 17 percent after the bailout, has fallen to 12 percent.

But with government debt at 130 percent of gross domestic product — the third-highest in the European Union — and the three main ratings agencies still classifying Portuguese debt as junk, Portugal's eurozone partners have warned that it can't afford to stray from the path of economic reform and debt reduction.

Costa's leftist alliance says it will "turn the page" on austerity. That means reversing cuts in pay, pensions and public services, as well as tax increases that have brought widespread hardship, street protests and strikes in recent years. Some 400,000 Portuguese left to seek work abroad.

Costa says he wants to speed the economic recovery by putting more money in Portuguese pockets and stimulating consumption.

Among the measures planned by the leftist alliance are giving back government workers' cut pay; unblocking pension increases; spending more on the national health service; providing free nursery schools for all 3-year-olds and free school books for all; reducing sales tax at restaurants from 23 percent to 13 percent; and restoring four public holidays that were scrapped to improve productivity. Questions remain over how Costa's government will pay for those measures.