Portugal’s leftists topple government

A left-wing opposition alliance in Portugal toppled the country’s minority conservative government in a parliamentary vote on Tuesday, less than two weeks after it was sworn in.

 Portugal’s election on October 4 was inconclusive as Mr. Passos Coelho’s ruling Forward Portugal alliance won the most seats but lost its majority.

Cavaco Silva could also opt to install a caretaker government until a new election can be held.

The minority government warned that a retreat on austerity could put Portugal on a similar path to Greece while the left celebrated the chance to raise incomes that were cut during the financial crisis, cut taxes and protect social benefits.

The plan was voted down by the new leftist bloc with 123 votes to 107 against in the 122-seat parliament, prompting the resignation of the government.

Sky’s Diplomatic Editor, Dominic Waghorn, said: “Portugal is not on the brink of replaying the turmoil we saw in Greece, but economists are concerned that is the direction the country is heading in”.

Furthermore, the leader of the Portuguese Socialist Party, led by Antonio Costa, is a moderate and is unlikely to wish to completely derail the previous government’s macroeconomic policies. “It now falls to the president to act”, Mr Costa said.

The Tuesday vote makes his new administration the most-short lived in Portugal’s history.

All the same, investors are anxious that Portugal’s economy, which is barely emerging from recession, is not strong enough to support a higher minimum wage.

Yields on the country’s benchmark 10-year bond rose 15 basis points to 2.84%, compared with 2.29% before the elections.

The Socialists are trying to return to power after Coelho led the first coalition government to survive a full term in office since four decades of dictatorship ended in 1974. A rejection would compel the government to stand down, with the landmark vote expected Tuesday afternoon.

David Schnautz, from Commerzbank, warned it would be a “weak executive” and predicted early elections would be called next year.

“We’re already paying a certain price for the uncertainty around the end of this debate and what eventually might happen after”, Coelho said in parliament on Monday.

“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.