Is Portugal the new Greece?
That’s apparently what’s worrying the country’s outgoing finance minister.
A “triple left” alliance has been formed by the country’s three main left-wing parties, and it has ousted the short-lived centre-right minority administration that formed in October.
Until recently, a coalition that brought the pro-European and centre-left Socialist Party into bed with the far-left and eurosceptic communist party seemed unlikely, but they have managed to come to a loose agreement. If it’s sustained, it could make Socialist Party leader Antonio Costa Prime Minister for four years.
Here are the comments from outgoing finance minister Maria Luis Albuquerque, reported by Bloomberg:
“Sadly, you only need to look at the recent history of one of our partners in the euro, Greece, and the cost of the alleged end of austerity and the revolt against Europe’s rules to see the effect it has,” Finance Minister Maria Luis Albuquerque said on Tuesday before the vote. “What have they gained? More recession, more poverty, more unemployment and an increase of the dependency on European institutions and the IMF.”
Two of the parties involved in the loose alliance that toppled the conservative government are among the most left-wing in Europe.
Here’s how they sit on a political spectrum covering their views on the eurozone and their left-right position on economic issues:
Though they don’t have to agree on everything for an administration, but if there are major conflicts over economic and European issues, the government may not last for very long.
Nick Kounis and Aline Schuiling at ABN AMRO illustrated some of the internal conflicts in the programme in a recent note:
Party leader Antonio Costa has pledged that the new left alliance will stick to the EU’s fiscal rules and that it will prevent the budget deficit from rising to above the 3%-threshold, which seems to be in conflict with some of the points in its policy programme. For instance, it wants to reverse some of the cuts in civil servant salaries, pensions and public services and some of the tax rises that have been implemented in recent years.
If the deficit runs over 3% of GDP, that will put Portugal on a crash course with European authorities. Though the country’s GDP is still depressed, and unemployment is 13%, the conditions of Europe’s stability and growth pact mean a deficit of over 3% is defined as “excessive.”
Similarly, government debt is already more than twice as high as the pact would like — countries are meant to endeavour to reduce their state debt to GDP ratios towards 60%. Portugal’s currently sits at more like 130%.
But Portugal and Greece are in two different situations. For starters, while Syriza — which is probably most comparable to Portugal’s Left Bloc — was by a distance Greece’s largest political force after the early 2015 election, the moderate centre-left Socialist Party is in the driving seat this time.
Secondly, and perhaps most importantly, Portugal’s bailout crisis ended 12 months ago, when the country collected its last cash from the Troika (Eurogroup, European Central Bank and International Monetary Fund). Unlike Greece, it has access to capital markets and can raise its own money. Bond yields may rise if the government tries to borrow dramatically more than expected, but the ability to tap private investors to finance spending is a crucial release valve that Greece didn’t have.
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