Portugal Socialist Coalition Reopens Eurozone Bailout Austerity Issue

The world has been busy following Europe's refugee crisis, but an "austerity" problem is again chewing at the "union" in the European Union. ~~~~~ Portuguese President Anibal Cavaco Silva must decide what happens next after the confusion created by October's inconclusive elections. Leftist parties that won enough seats in parliament to force the center-right pro-EU austerity coalition into a minority government have said they'll vote to topple that Cavaco Silva-appointed minority government. Last month, Prime Minister Pedro Passos Coelho's center-right government came in first but lost its majority, as many voters rejected the harsh austerity that he has imposed on the country in return for an EU bailout. But, Cavaco Silva re-named Passos Coelho as prime minister, arguing that the precedent since Portugal abandoned dictatorship in 1974 gave him the right to try to form a government, ignoring the left's claim to power, and arguing the center-left Socialists only secured a majority by turning to hard-left political allies with Eurosceptic stances. He was referring to Friday's announcement by Portugal's Communist Party that conditions are in place to create a government led by the center-left Socialists and ousting the center-right from power. The deal ensures that the Socialists can lead a leftist majority government, having earlier brought in the Left Bloc, another small far-left party. Cavaco Silva said : "Never has a Portuguese government depended on the support of anti-European political forces." His comment was aimed at the Communists and Left Bloc that have advocated leaving the Eurozone. Passos Coelho stands to lose a vote in parliament on his government program -- on Tuesday or Wednesday. ~~~~~ The prime minister would lose his job, and Cavaco Silva would be in trouble because the constitution doesn't clearly say what would happen next. Normally, Cavaco Silva could dissolve parliament and call new elections, but a scheduled January presidential election means he can't do that constitutionally. So, Cavaco Silva must decide whether to invite Socialist leader Antonio Costa, whom he has already insulted, to form a government, or keep Passos Coelho's government as caretaker until new parliamentary elections in June. Analysts say the key issue for Cavaco Silva may be whether any leftist government would stand by Portugal's commitments to EU budget rules. And, whatever Cavaco Silva decides, he will leave office early next year, so it will be up to his successor to deal with the consequences of the complicated parliamentary situation. ~~~~~ One consequence is economic. Passos Coelho warned yesterday that if a Socialist government abandons the reforms and Eurozone commitments, it would be ruinous for Portugal. The prospect has unsettled financial markets. The Portugal benchmark 10-year bond yields soared 20 basis points to 2.87% on Monday - their highest since July - anticipating higher borrowing costs under a Socialist government. The Lisbon stock market fell 4.1%, led by banks. Passos Coelho warned that Portugal, which only exited an EU bailout last year, could not afford to quit the reforms and Eurozone budget commitments. Socialist leader Costa said yesterday that agreements signed with the Communists, Left Bloc and the Greens "guarantee the forming and parliamentary approval of a Socialist government" that would respect Portugal's EU commitments. However, Costa's far-left partners have only promised parliamentary support, not entering the government. They reject some bailout reforms, despite Socialist pledges to respect budget discipline. And the Socialists want to return disposable income to households to boost the economy, by overturning some Passos Coehlo wage cuts, that they believe would do more than austerity to reduce the budget deficit and meet Portugal's EU commitments. ~~~~~ Dear readers, Portugal had been touted as an austerity success story. Many Portuguese citizens seem to disagree. And, the EU austerity deal with Greece is also coming unglued. Eurozone stresses are far from over.