Portuguese revolt against austerity grows

A coalition of the left has ousted Portugal's conservative government of Anibal Cavaco Silva – can it survive?

15-11-12-Portugal-634

Cavaco Silva loathes the left

Portugal's new government collapsed this week after just 11 days in office. A centre-right coalition emerged as the largest bloc after the 4 October election, but without a parliamentary majority. Since then, the Socialists, Communists and far-left Left Bloc have buried historical differences and last Tuesday managed to oust the government in a no-confidence vote. They now look set to form a government.

Portugal's president, Anibal Cavaco Silva, has made clear his distaste for the left and could, in principle, decide to keep the current minority government in place until the constitution permits new elections in April, but is thought unlikely to do so.

What the commentators said

This is not a "Syriza moment", said Ambrose Evans-Pritchard on Telegraph.co.uk. But "the ascendancy of the left marks a clear break with the previous austerity regime". Given the coalition's apparent desire to turn back the clock, a leftist coalition "could pose a real risk to both domestic and international confidence in the Portuguese economy", said Desmond Lachman of the American Enterprise Institute on TheHill.com which is something Portugal really can't afford.

The country's overall debt pile is still around 125% of GDP. Add in private debt and the overall ratio jumps to 370% of GDP, among the highest in Europe. The recovery has been slow and the economy is flirting with deflation, which would make the debt pile worse. If the country now turns its back on austerity and reform, it could lose its investment grade status from credit rating agencies.That would prevent the European Central Bank from buying its debt and thus keeping long-term borrowing costs low as part of its quantitative easing programme.

This Portuguese drama is "part of a larger process of political fragmentation" in Europe, noted Lachman. Catalonia is making noises about declaring independence from Spain, while the migrant crisis is undermining Angela Merkel's authority.

If Spanish socialists combine with new insurgent parties to boot out the right in Spain next month, added Evans-Pritchard, the whole of southern Europe would be left-leaning. It would then have the "heft to confront Germany and push for a fundamental overhaul" of the euro bloc's economic policy. Political risk in Europe is making a comeback.

Recommended

Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021
Why are energy prices going up so much?
Energy

Why are energy prices going up so much?

UK energy prices are going through the roof, with electricity the most expensive in Europe and gas at its highest for 13 years. Saloni Sardana explain…
16 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021