Portugal’s government is likely to recieve a vote of no confidence – here’s what you need to know
The Portuguese Prime Minister and his minority coalition government face a major confidence vote in parliament today. Here's what you need to know:
-
The Prime Minister is likely to lose
The centre-right coalition has the most seats in parliament but does not have a majority. After October's election, the PSD, the People’s Party and Portugal Ahead held 107 out of 230 seats. To carry on as a minority government, it must survive today's vote of confidence.
The coalition, led by Prime Minister Pedro Passos Coelho, has also already reversed some austerity measures to appease opposing parties, including the reversal of public sector pay cuts. However, the opposition Socialists struck a deal with two smaller left-wing parties over the weekend making it likely that Coehlo’s government will not survive tomorrow.
-
Markets are concerned
The interest rate on the Portuguese government’s 10-year borrowing costs shot up to 2.83 per cent from below 2.7 per cent today. The Lisbon stock market slumped nearly 4.1 per cent, led by banks. The largest lender, Millennium bcp, closed 9.5 per cent lower.
-
The next steps
If Coehlo loses, the President of Portugual can invite the Socialist coalition to form a new government, or it can reinstate Coelho in a caretaker role with a re-election next year. If the Socialist-led coalition wins, it will almost certainly reverse austerity measures. The country's government debt currently stands at around 130 per cent of GDP.
-
It's unlikely to be another Greek drama
While, like Greece, Portugal has seen a strong climb in the last 18 months of its far-left parties, it left its bailout programme a year ago. It is not under any pressure to meet strict conditionalities enforced by the International Monetary Fund, European Central Bank and European Commission. However, it is likely to come under pressure from Europe to keep its spending down and not to reverse economic reforms.
Economists at RBS summed up Portugal's situation nicely:
Portugal has so far been deemed a “good student” among periphery countries, often in comparison with Greece, for its positive performance on reforms and growth. In past governments, both leading and opposition parties have campaigned in favour of Europe and reforms.
And today the Portuguese economy is growing and unemployment slowly falling. Yet, Portugal has one of the highest public and private debt levels in Europe and finds itself on a fragile political footing. So far, and unlike Greece, it has been immune to radical politics and strong dissent. But today, political risks are rising.