Portugal Left Set to Oust Centre-Right, Roll Back Austerity

LISBON: Leftwing parties looked set to oust Portugal's minority centre-right government today in a parliamentary vote, part of a drive to set up their own Socialist-led administration they hope will put an end to years of harsh austerity.

The prospect of a government backed by the Communists and other far-left parties has rattled investors and threatens to derail a fragile economic recovery in Portugal, which exited an international bailout only last year.

Lisbon's stock market shed a further two percent in early trade after tumbling more than 4 percent on Monday. Bond yields tightened slightly after a 20-point slide the previous day.

Prime Minister Pedro Passos Coelho's centre-right coalition won most votes in an Oct. 4 parliamentary election and, in keeping with political convention, he was sworn back into office last week by the president.

But his coalition lacks a parliamentary majority and was outvoted by the combined strength of three left-of-centre parties - the main opposition Socialists, the Communists and the Left Bloc.

In an unexpected development not seen in four decades of Portuguese democracy, the three leftwing parties have agreed to cooperate to reject the government's new programme in a vote due today afternoon. That would force its resignation.

"The left will remain united and reject Passos Coelho's programme, forcing the prime minister to resign," said Antonio Barroso, senior vice president at Teneo Intelligence, a political risk consultancy, in a report.

In what could then be a lengthy and economically damaging process, President Anibal Cavaco Silva could ask Passos Coelho's government to remain in a caretaker capacity pending a new election next year or invite Socialist leader Antonio Costa to form a leftist government.

"MARKET-NEGATIVE"

If Costa leads a government with the Communists and Left Bloc, it will be Portugal's first to include far left parties since Portugal returned to democracy in 1974 after decades of right-wing dictatorship, Barroso said.

"The probable consequences of this experiment are far from clear-cut, but they are likely to be mostly market-negative," he said. The Socialists could roll back reforms and spending cuts introduced during Portugal's debt crisis and bailout even though they have promised to stick to European budget goals.

Portugal's largest trade union, the CGTP, which is linked to the Communists, has called a rally in front of parliament for Tuesday afternoon. A counter-rally in support of the government is planned at the same venue a little earlier.