Source: The FT 2 October, 2017,Peter Wise in Lisbon
“First electoral test for centre-left prime minister since he took office two years ago…
Portugal’s ruling Socialists reaped the rewards of a burgeoning economy this weekend by winning a decisive victory in local elections midway through the first term of the country’s anti-austerity government. The nationwide polls on Sunday, the first electoral test for António Costa, Portugal’s centre-left prime minister, since he took office two years ago, were a strong indication that his minority government is likely to survive for a full four-year term. In their biggest local election victory in four decades of democracy, the Socialists (PS) won control of least 157 of the country’s 308 municipalities and 38 per cent of the total vote early on Monday with less than 1 per cent of the vote still to be counted. The centre-right Social Democrats (PSD), the main opposition party, suffered their worst ever defeat in a local poll, winning only 16 per cent of the total vote and 79 municipalities outright. The abstention rate was 45 per cent. “This is a historic victory that will strengthen the political and policy changes we began two years ago and lend new energy to our parliamentary majority,” Mr Costa told cheering supporters in Lisbon, where the PS retained control of the city council. While right-of-centre governments have lost ground in recent elections in Germany, the UK and Norway, Portugal’s Socialists are riding high in opinion polls, with their local election victory adding to a series of economic successes. Portuguese voters have habitually used local polls to castigate sitting governments. But on Sunday they punished the opposition, with the PSD finishing in third place in the capital, Lisbon, with only 11 per cent of vote. Pedro Passos Coelho, the former prime minister who steered Portugal through a punishing international bailout, said he would not immediately resign as PSD president, but would consider whether to stand for re-election as party leader at a congress scheduled for early next year. Analysts said the election results suggested the PS government was not only likely to last for a full term but also to win the next general election scheduled for late 2019. “The PSD faces internal convulsions and six years in opposition,” João Miguel Tavares, a political commentator, wrote in the Público newspaper on Monday.
Mr Costa has confounded his critics by gaining in popularity since he won office by unexpectedly forging a broad leftwing alliance after an inconclusive general election in October 2015. Opponents forecast his pledge to “turn the page on austerity” would put him on a collision course with the European Commission and that his alliance with the Communist party (PCP) and the anti-capitalist Left Bloc (BE) would fall apart amid mutual recriminations. Instead, Mr Costa has succeeded in simultaneously outperforming EU fiscal targets, overturning austerity measures and presiding over an economic recovery that seen unemployment fall close to pre-crisis levels. Recent milestones include exiting the EU’s “excessive deficit procedure” for fiscally wayward member states and earning for Portugal an S&P credit rating upgrade to investment status.Mr Costa has benefited from favourable economic conditions, including low oil prices, a tourism boom and the stimulus of the European Central Bank’s bond-buying programme. Recovery in the EU, the market for three-quarters of Portugal’s exports, has supported a strong export drive. The government has also profited from the fiscal consolidation and labour market reforms overseen by Mr Passos Coelho during the bailout years. Opponents accuse Mr Costa of imposing a camouflaged form of austerity by offsetting cuts in direct taxes with indirect tax increases and compensating for increases in the minimum wage, state pensions and public sector pay with cutbacks in public investment and health spending. Mr Costa had forecast that growth would be driven by domestic demand after overturning austerity measures introduced during the bailout. Instead, it has been largely supported by exports and private sector investment. The prime minister, however, has proved adept at instilling a sense of optimism among voters. As the BE and PCP press the government to use the fiscal leeway Portugal has gained to benefit public sector workers, Mr Costa will need all his political skills this month to negotiate a 2018 budget that satisfies both Brussels and his leftwing partners. The smaller parties do not form part of the government, but their votes in parliament are crucial to the survival of the minority administration. After losing control of nine municipalities to the PS on Sunday, the PCP, in particular, will be anxious to prove the benefits of the pact to its supporters. A weakened PSD and the potential resignation of Mr Passos Coelho could also make it harder for Mr Costa to achieve his aim of building a “national consensus” on Portugal’s future during the second half of his mandate. Over the past nine months, Portugal has been, for the first time this century, growing faster that the EU average. Mr Costa’s ambition is to translate that into “a decade of convergence” with the rest of Europe. Ensuring the co-operation of parties on both left and right will require a delicate balancing act.