Portugal’s far-left parties are set to topple the centre-right administration and support a socialist government. But with no guarantee of support for budget measures, political uncertainty hit financial markets on Monday.
The government of centre-right prime minister Pedro Passos Coelho came first in last month's election, but he lost his majority as many voters gave the thumbs- down to the austerity he has imposed in return for an international bailout.
In a vote on the government’s programme, likely to take place on Tuesday, the leftist parties are set to use their parliamentary advantage to topple the minority administration.
Socialist Party leader António Costa said on Monday that agreements signed with the communists, left bloc and Greens “guarantee the forming and parliamentary approval of a Socialist government” that would respect Portugal’s European commitments.
The deals mean that “conditions are in place for stability for the duration of the legislature, as well as conditions to govern with joint appreciation of fundamental instruments of governance, notably state budgets,” he said.
However, the far-left partners have so far promised only parliamentary support without entering the government. They reject some reforms imposed under the bailout that Portugal exited only last year.
“There is a declaration of general support, but then it’s budget negotiations case by case, which is problem- prone,” said political scientist António Costa Pinto.
“Also, the Socialists have separate agreements with each far-left party, which will certainly create problems when they have to make” policy adjustments, he said.
Bond jump
On Monday, Portugal’s benchmark 10-year bond yields jumped more than 20 basis points to 2.87 per cent. This was their highest since July, anticipating higher borrowing costs after the communists announced their support on Friday.
The stock market fell 1.9 per cent on Monday.
The Socialist Party wants to return disposable income to households to boost the economy, overturning some wage cuts imposed under austerity. They says economic growth would do more than austerity to help reduce the budget deficit.– (Reuters)