Portugal: 'Europe is very concerned' as new gov't likely short-lived

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 Portuguese Prime Minister Pedro Passos Coelho (front) and Deputy minister Paulo Portas leave a press meeting after talks with Socialist party (PS) leader Antonio Costa in Lisbon, October 13. Read more about Portugal.

By Dick Nichols

The incoming government of Portugal will most probably prove to be the briefest in modern Portuguese history.

It is headed by conservative Social Democratic Party (PSD) leader Pedro Passos Coelho, whom Portuguese president Cavaco Silva appointed on October 22 to repeat as prime minister. Passos Coelho has already overseen the application of the 2011 “bail-out” memorandum applied to Portugal by the Troika (European Commission, European Central Bank and International Monetary Fund). The PSD will again be joined by the neoliberal Democratic and Social Centre-People's Party (CDS-PP), with whom it ran in the October 4legislative election as the Portugal Ahead coalition.

The near-certain end of the government will be the result of a November 10 vote of no-confidence from the left majority in the incoming parliament. Of the parliament's 230 seats the three parties identifying as left hold 122 seats, Portugal Ahead 107 and the animal rights party People Animals Nature (PAN) one.

This left majority was produced when the SPD-CDS coalition won only 38.4% of the vote on October 4. It was followed by 32.3% for the Socialist Party (PS), 10.2% for the Left Bloc and 8.3% for the Portuguese Communist Party (PCP), running in coalition with the the Greens (PEV). The left has already used its majority to get up its candidate for speaker of the parliament, left SP deputy Ferro Rodrigues.

At an October 31 public meeting in Beiras , PCP general secretary Jeronimo Sousa said that “this is a doomed government, a government that will not happen, that will sink in the parliament on the adoption of a motion rejecting the program it will present.”

Also on November 10, PS leader António Costa will announce the detail of the agreement between the PS, Left Bloc and PCP-PEV that would allow the formation of a stable, full-term (four year) government. Whether the proposal will take the shape of a PS minority government supported from outside by one or both of the other left forces or a form of coalition is presently being finalised.

The fact that the three left parties are still thrashing out their agreement is being used by the right to keep up pressure on the PS. On October 30, Luis Montenegro, leader of the PSD parliamentary group, said: “Unfortunately, the PS decided to choose a path of convergence with the far left...and hardly even pretended to negotiate with the Portugal Ahead coalition. We continue to be open to discussion.”

The critical issue is what will happen after parliament votes no-confidence in Passos Coelho. Will Cavaco Silva, former PSD prime minister (1985-95) and completely allergic to accepting the Left Bloc and PCP as members of the so-called “arc of government”, then ask Costa to form a government? Or will he stick by his ban on the PS's “anti-European” partners?

If the latter, Cavaco Silva will in effect install the minority PSD-CDS as a “caretaker” government until new elections can be held. Such a a decision would spark at least eight months of political tension and turmoil because Cavaco Silva's term ends in January 2016 and under the Portuguese constitution a newly elected president cannot call a legislative election for six months (June 2016 at the earliest).

The path to crisis

In Portugal, the broadly defined parties of the left have had a parliamentary majority for 22 of the 41 years since the 1974 Carnation Revolution overthrew the dictatorship of António Salazar and successor Marcelo Caetano.

However, only today has this majority pitched the country into constitutional crisis, to the point, in the words of Mujtaba Rahman of risk consultancy Eurasia Group, that “Europe is watching and is very concerned. Having just stabilised Greece and heavily distracted by migrants, the last thing Europe needs is a crisis in the south.”

The immediate cause of this new headache for “Europe”--that is, the continent's ruling elites—is the decision of the PS to try to build a governing alliance with the Left Bloc and the PCP.  Why has this party, which was set up as an anti-communist outfit in 1973 and has since 1975 governed five times in minority and once in coalition with the right, taken this unprecedented step? The answer has two sides: the depth and intransigence of Portugal's economic and social crisis and the vulnerability of the PS to pressure from its left, most of all from the Left Bloc.

Up until the present crisis, mainstream commentary on Portugal tended to compare the country favourably with Greece. For example, a May country report by the research unit of Dutch banking giant Rabobank noted with relief that the country was not “facing politically destabilising populist and extremist trends despite its high unemployment and considerable reform and austerity effort in the past few years”.

This complacency was not without foundation: Portugal's 2012-13 mass movement of revolt against the Troika-imposed austerity (“Screw the Troika”) was not as powerful and sustained as in Greece and did not lead to the rebirth and growth of the radical left. A downturn in struggle after mid-2013 also helped produce a crisis in the Left Bloc, which almost split in two at its November 2014 national convention.

Meanwhile, austerity has ground on, producing miserable economic growth at the expense of acute social pain. Hundreds of thousands of young people continue to flee their country, where youth unemployment runs at 31.8%; 60% of the country's 633,000 unemployed have been out of work for more than a year; average household income has fallen 8.9% since 2009; and “low-wage workers...need to work very long hours at the minimum wage in order to escape poverty” (OECD).

Unlike the Greek economy's violent descent into catastrophe, the Portuguese economic picture is more one of chronic stagnation. This persists because of the country's low rate of investment, its very high rate of private indebtedness and its persistent balance of payments deficit due to membership of the euro, overvalued in relation to the economy's productivity levels.

Political impacts

The main political impact in the economically stagnant country has been to increase mass disillusionment with politics, erode support for the right and somewhat increase support for the SP--but only to the degree that potential voters can be convinced that it has become a different beast from the one that brought in the Troika in 2011.

At the same time, the inability of the Left Bloc and PCP to develop unity to the left of the PS has meant that the Portuguese social democracy is still seen by most working-class voters as the only alternative party of government.

This was the context in which PS leader Costa--who on the basis of left critique had already in September 2014 beaten former leader António Seguro for the position of lead PS candidate--proposed to give Portugal a new model of development. In a “Letter to Undecided Voters” he promised an end to casualisation and poverty, to defend public health and education, to “turn the page on austerity so as to relaunch the economy” and to adopt “an active role in Europe...that enables us to resume convergence [with other EU countries] and strengthen our position in the euro.”

Costa added that “we have to overcome depression, scepticism, resignation and the feeling of national decadence, and rebuild a feeling of collective hope in our common future.”

The Left Bloc and PCP-PEV had to decide how to react to Costa's stated rejection of hated austerity. The Bloc's response was to further re-emphasise its message for a political dialogue on the left “with a view to ending the cycle of the country's impoverishment and to recovering the value of worker income and pensions”. An October 18 resolution of its National Board said: “The challenges and conditions for agreement advanced by the Bloc, specifically by [leader] Catarina Martins to António Costa, marked the pre-election debate.”

It was the Left Bloc's decision to focus on wages, pensions, job protection and blocking privatisations as core conditions for supporting a PS government—leaving aside debt restructuring and euro membership—that made some sort of three-way left agreement thinkable. It also helped induce the PCP to engage with the possibility of throwing out the SPD-CDS, even though the PCP supports a rapid Portuguese exit from the euro and has a history of strong hostility to the PS.

The decision also meant that key Left Bloc policies would have to be kept on hold for a more favourable political context. At an October 30 meeting in Coimbra, newly elected Left Bloc MP and deputy-speaker of parliament José Manuel Pureza stressed that the negotiations were based on the relationship of forces among them and that “not all our chickens will come home to roost because we only won 10% of the vote...having agreed to set to work, we have many constraints.”

Catarina Martins made the same point, stressing that the Left Bloc was not abandoning its program, but that all of it could not be the basis of negotiations that represented “a clear effort to prevent the people from being condemned to a right wing that is set on destroying the country.”

As for the PS, in advancing negotiations to its left Costa faced opposition from various of its factions, including those who thought an agreement with the SPD-CDS was feasible. Such a course would have caused the PS enormous damage: it would have been seen—correctly--as having kept the authors of hated austerity in the control room.

In an October 19 letter to the PDS-CDS ending negotiations between the “parties of government”, Costa wrote: “What separates us...are the pressing needs of the country and the sovereign will of the Portuguese for a reorientation of politics, which you persist in not accepting.”

Presidential panic

Once it became clear that these negotiations had broken down, Cavaco Silva addressed the nation, justifying his choice of Passos Coelho as prime minister on more grounds than the traditional one of Portugal Ahead having won the election.

The fact that an alternative majority existed --as opposed to other occasions when Portuguese presidents have appointed a minority government--did not deter Cavaco Silva. He just asserted that he had not been presented with “a stable, lasting and credible alternative solution”.

The president  told Portugal: “In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO.

“This is the worst moment to radically change the foundations of our democratic regime...Outside the European Union and the euro the future of Portugal would be catastrophic.

“After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets.”

Former PS health minister António Correia de Campos analysed the result of the speech in an October 26 comment in the daily Público: “Rarely has the impact of a political performance been so contrary to that aimed for by the performer. We can't yet quite mange to envisage Doctor Cavaco as a socialist activist, but we can at least see him as the great adhesive, the main actor, in the process of unifying the left.”

The president's boomerang-speech created a constitutional crisis and enormous outrage: effectively the one million Portuguese who voted Left Bloc and PCP can never expect their parties to have any role in choosing a Portuguese government. It openly invited the “markets” to distrust his country and made it impossible for PS right MPs, whose betrayal he was actively courting, to vote against their party, at least for the time being.

Portugal is now divided for and against its president and the November 9-10 parliamentary session will take place in the presence of a demonstration called by the General Confederation of Portuguese Workers (CGTP) demanding that Cavaco Silva appoint Costa as prime minister.

If he refuses, insisting that Passos Coelho continue as “caretaker”, the dormant class struggle in Portugal must surely revive as an illegitimate government starts to take decisions that affect the life of the mass of Portuguese. If he accepts, the incoming government will surely face a hostile European Commission that must already be wondering whether it will have to tame Portugal as it has Greece.

Despite his October 22 disaster, Cavaco Silva was a week later keeping up the pressure on the PS waverers. In his speech at the October 30 inauguration of the new Passos Coelho ministry the president, while trying for a more conciliatory tone, made avoidance of economic chaos and an “ungovernable” country depend on strict obedience to European treaties and agreements:

“We have to guarantee access, in comfortable conditions, to sources of financing for the state, the banking system and businesses.

“Without access to sources of finance, the state will have difficulty in meetings its undertakings, the banking system will face serious difficulties in extending credit to businesses, and these, in turn, will not be able to invest in the creation of wealth and employment.

“External financing depends on the image of the country internationally. And this external image depends for its part on the sense of responsibility that political, social and economic actors show domestically.”

The fact that Cavaco Silva was simply repeating himself created the impression that he may have realised that it is now politically impossible to save the Passos Coelho government and was now focussed on reducing the PS's room to manouevre. Cavaco Silva would also be mindful of the impact a refusal to appoint a left government would have on the chances of the right's candidate in the coming presidential poll.

While the Left Bloc and the PCP have already announced their candidates for this contest, the Bloc has alsomade it clear that it will withdraw its candidate, popular European MP Marisa Matias, if she does not come in first of the left candidates in the first round. This increases the pressure on the PS and PCP to make the same commitment and have a clear left versus right contest in the second round. That has been nearly always the only situation in which it has been possible to beat the right in presidential elections.

Europe's next conflict

Barring complete intransigence from Cavaco Silva, a PS government which the Left Bloc and the PCP-PEV either participate in or support looks like a necessary outcome of the present phase of Portuguese politics.

What alternative was there? If the PS had supported the line of its right wing—allowing the continuance in government of the PSD-CDS—many would have deserted to its left; if the Left Bloc hadn't shown support for a governmental alternative centred on the PS, it would have revealed itself as purely oppositionist. The PCP, with its very stable support base, would have suffered least, but been confirmed as only having a “strategy” of waiting for its day to come.

What economic options will a left government really have? Can it square the circle of increasing family incomes, private and public investment and jobs while abiding by the dictates of “Brussels”--especially when the line of both the Left Bloc and PCP is that without a radical restructuring of public debt to allow boosted state investment, Portuguese stagnation can only continue?

The signs point to difficult and tricky times to come. For starters, it could easily turn out that the budgetary cupboard is barer than the Portugal Ahead coalition implied during the election campaign The outgoing government has already failed to meet its obligations to reveal budget projections under the requirements of the “European Semester” cycle of EU economic policy coordination. What does it have to hide?

In the case of budget shortfall implementing the basic commitments of a left government will probably require violating the country's public deficit reduction target, rapidly opening up some Portuguese variant of SYRIZA's lost fight with the Troika.

However, in such a fight, the European Commission, which lost a great deal of legitimacy with its “victory” over Greece and faces a very complicated fight to hold the line in Spain as the December 20 election approaches, is looking increasingly vulnerable.

The Portuguese political crisis—generally under-reported in the mainstream European media—looks set to become the continent's next major conflict between democracy and austerity.

Dick Nichols is Green Left Weekly's European correspondent, based in Barcelona. An initial version of this article has appeared on its web site.