Portugal eyes experiment with anti-austerity policies

Staff Writer
Columbus CEO

LISBON, Portugal (AP) — Portugal is facing days of political and economic uncertainty as the eurozone nation waits to hear whether the anti-austerity lawmakers who forced the government's resignation will take power — and how they intend to manage the country's fragile public finances.

President Anibal Cavaco Silva began formal procedures for a change of power by meeting Wednesday with the speaker of Parliament and outgoing Prime Minister Pedro Passos Coelho. He was also meeting in the coming days with labor groups, business leaders and all political parties.

The head of state is widely expected to invite Socialist Party leader Antonio Costa to be prime minister. Costa forged a pact with the Communist Party and radical Left Bloc to bring down the center-right government after 11 days, making it the shortest Portuguese administration on record.

Cavaco Silva could also opt to install a caretaker government until a new election can be held.

"At this point we are all waiting. Portugal is on hold," said unemployed Magda Rodrigues outside a Lisbon welfare center. She wants to set up her own business and is hopeful the new government will offer her more tax breaks.

The outgoing government got most votes in an October general election when it promised more years of frugality following the debt-heavy country's 78 billion-euro ($84 billion) bailout in 2011. But the second-placed Socialist Party formed an unprecedented leftist alliance to create an outright parliamentary majority that voted against the government's four-year policy proposals Tuesday, automatically bringing its resignation.

That alliance wants to ease austerity and focus on growth by putting more money in people's pockets. To do that, it has promised to reverse the tax increases and pay and pension cuts introduced after the bailout.

It also aims to reverse some privatizations, such as those in the transport and energy sectors, but it is not clear whether those steps would bring costly legal challenges.

The Socialists say they will abide by eurozone rules on fiscal discipline but they have yet to explain in detail how they will increase spending without damaging public finances. Portugal's economy and government finances are still weak. Government debt is at 128 percent of gross domestic product — the third-highest in the European Union — and the three main ratings agencies still classify Portuguese debt as junk.

"The main challenge for (the Socialist) government is how, in the current context of budget orthodoxy, to move quickly in restoring Portuguese buying power," said Antonio Costa Pinto of Lisbon University's Institute of Social Sciences.