Portugal’s election winner set on fast-track to austerity

Portuguese election victor Pedro Passos Coelho received orders Monday to move quickly to form a new government as pressure mounted on Lisbon to enact reforms demanded by the EU and IMF in exchange for a massive bailout.

President Anibal Cavaco Silva deemed that Passos Coelho could not afford to wait until he is formally named prime minister before putting together a coalition of his centre-right Social Democrats (PSD) with the smaller conservative CDS-PP.

The PSD took 38.6 percent of the vote in Sunday’s polls to secure 105 seats in the 230-seat legislature, while the CDS-PP garnered 24. The two parties, which together would have an absolute magority, last governed together in 2002-05.

Cavaco Silva said after meeting with Passos Coelho for more than 90 minutes, that the government should be proposed even before the final results of Sunday’s elections are published on June 15.

The new government will be tasked with pushing through deep spending cuts and economic reforms under an agreement in May with the so-called “troika” — the European Union, Internatinal Monetary Fund and the European Central Bank — in exchange for the 78 billion euro ($114 billion) bailout.

It is a tall order but one that appears to have widespread public support.

“The right will have to implement a difficult programme,” Lisbon University political scientist Marina Costa Lobo said. “But according to the polls, an overwhelming majority of Portuguese people feel that the programme of the ‘troika’ will be positive for Portugal.”

In his victory speech, Passos Coelho vowed to start enacting the bailout deal “as soon as possible,” adding that he was willing to impose more austerity measures to ensure Portugal does not become a “burden” to its creditors.

He campaigned on a promise to “go beyond” the conditions attached to the bailout deal, which imposes tight deadlines to impose deep spending cuts and economic reforms aimed at reviving growth and reining in a public deficit that hit 9.1 percent of output last year.

The terms were negotiated in a hurry, without waiting for the outcome of the snap polls sparked by Socialist Prime Minister Jose Socrates’ resignation in March after parliament rejected his minority government’s latest package of austerity measures.

A delegation from the “troika” will visit Lisbon at the end of July to assess the progress in implementing the bailout programme.

By then the new government will need to have decided what austerity measures to put in place to offset the reduction in corporate social security contributions called for in the agreement to make firms more competitive.

It will also have to find a buyer for nationalised bank BPN and give up its so-called “golden shares” in listed companies such as former state monopoly Portugal Telecom.

During the second half of the year, parliament must vote for a new package of austerity measures for 2012 as well as key structural reforms to dynamise an economy that has posted sluggish growth for a decade and is expected to shrink by around two percent this year and next.

To curb the rise in the nation’s public debt, which hit 160 billion euros in 2010, the equivalent of 93 percent of GDP, the government will have to speed up the pace of its privatisations, starting with the sale of TAP-Air Portugal and its stakes in power firm EDP and power grid operator REN.