Facing crucial vote, Portugal PM warns country can not abandon reforms

But Mr. Costa has often said any government he leads will respect the compact and keep Portugal within the single-currency.

The second-placed Socialist Party has forged an alliance with the Communist Party and the radical Left Bloc to create a 122-seat majority in the 230-seat Parliament.

The leftist majority seeks to reject the programme in the vote that is likely to take place on Tuesday, and then form a Socialist-led government.

Together they will have 122 seats, enough to out-vote the centre-right coalition government, which was left with only 107 after October’s inconclusive elections.

That vote is expected Tuesday at the end of a two-day debate in the Assembleia da República.

As the leader of the biggest opposition party, Antonio Costa, who was Mayor of Lisbon until April, will likely be installed as prime minister, and immediately shift the country away from the program of tight budget controls and fiscal discipline implemented by Passos Coelho, to a more expansive fiscal policy.

“I will take my responsibility to not collaborate with and to oppose a negative policy that will be ruinous for Portugal, and which treats the Portuguese people as mere instruments of political power play”, he said, to applause from the right-wing benches. Though full details of their pact are not yet public, they have revealed a few of their planned measures: give back government workers their pay that was cut; unblock pension increases; spend more on the national health service; provide free nursery schools for all 3-year-olds and free school books for all; reduce sales tax at restaurants from 23 per cent to 13 per cent; and restore four public holidays that were scrapped to improve productivity.

The deals secured by the Socialist Party may provide it with a few breathing space, while not shielding it indefinitely from attacks from the left, particularly Portugal’s largest trade union federation, the CGTP, which has close links with the Communist Party.

The program forecasts a budget deficit as a percentage of gross domestic product of 2.8 percent in 2016, dropping to 2.6 percent in 2017, 1.9 percent in 2018 and 1.5 percent in 2019.

However, market concerns are mounting.

Even before taking into account the change in government, the Organization for Economic Cooperation and Development (OECD) warned that the fragile economic recovery risks slowing next year unless the pace of reform is picked up to cut debt, boost competitiveness and encourage investment.

Conservative President Anibal Cavaco Silva had previously refused to ask PS to form a government on the grounds that the left parties are “anti-European forces”. Coelho led the first coalition government to survive a full term in office since 1974.

The centre-right coalition has the most seats in parliament but does not have a majority. Its survival beyond that will depend on how well the Socialist leader can balance Brussels’ demands for tight finances with the anti-austerity wish-list of his new left-wing allies.