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.
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.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Rishi Sunak: We need a cultural change to make people investPodcast On the MoneyWeek Talks podcast, Rishi Sunak tells Kalpana Fitzpatrick that we need better numeracy skills to improve financial literacy and boost the economy.
-
Crypto ETN warning: why adding them to your ISA could be riskyCrypto investors could be exposed to short-term market volatility thanks to HMRC rules if they buy cETNs into a stocks and shares ISA
