On 23rd March last Portuguese Prime Minister José Socrates (Socialist Party PS) resigned from office after Parliament rejected the 4th version of the rescue plan that was supposed to ensure the reduction of the country's budgetary deficit which represented 9.3% of the GDP in 2010. "If MPs vote against the austerity plan the government will not be able to attend the European Council on 24th and 25th March to present the measures it has decided upon to achieve fiscal consolidation (...) and we shall have to consult the people to see what its opinion is," declared the head of government during a televised interview. The fourth plan included 15 main measures: reduced tax rebates on housing loans, the postponement of some infrastructure projects, the suppression (or reduction) of tax rebates, the reduction of redundancy compensation, an increase in taxes on retirement pensions, an increase of direct taxes such as on car tax, a reduction in healthcare spending and social aid and an increase in business taxes.

The rescue plan was rejected by the rightwing opposition forces (Social Democratic Party, PSD, and the Popular Party PP) and by those who are against economic liberalism (Communist-Green Party coalition, CDU and the Left Bloc, BE). As a result of the Prime Minister's resignation, on 31st March President of the Republic Anibal Cavaco Silva, who was re-elected to office on 23rd January last convened early general elections (early by two years) which will now take place on 2nd June.

Portugal, the third EU country to turn to international aid

Portugal has not experienced a banking or housing crisis as in Ireland. Nor has the country lied about its public accounts or hidden its deficits as Greece did. However its economic growth is slow and it is now in political crisis after the resignation of its government on 23rd March.

Credit ratings agency Moody's downgraded the Portuguese rating on 11th April bringing it down from A3 to Baa1 because of uncertainty about the country's budget. Standard and Poor's did the same on 29th March (from A- to BBB) as did Fitch which gave it the rating of BBB-; this is the last level before entering the speculative category, in which the country is considered to be unable to reimburse its debt without having to turn to the outside for aid. According to Fitch the upward revision of the Portuguese public deficit and the size of the country's debt bring the goal of reducing the deficit down to 4.6% of the GDP this year into question.

Portuguese President, Anibal Cavaco Silva protested against the downgrading of his country's rating saying that "the Portuguese situation did not justify a reduction like that."

Given this context the interest rates that Portugal now has to pay to borrow on the financial markets have soared reaching record levels (10 year lending rates have risen to 8%); whilst having raised 4.2 billion € for April the country still has to find 4.9 billion before 15th June. Money has become extremely expensive for Portugal and it now being penalised on the markets.

In the face of pressure from the financial markets which believe that Lisbon had no other solution to the crisis but to turn to international aid, Prime Minister José Socrates finally decided to ask for the financial help of the EU and the International Monetary Fund (IMF). On 6th April last he appealed to the European Funding Mechanism for help to emerge from the financial turbulence: "the government has decided to address a request for financial aid to the European Commission." "The country has been pushed irresponsibly into a difficult situation on the financial markets," deplores Fernando Teixeira Santos (PS), outgoing Finance Minister, referring to parliament's rejection of the latest austerity programme put forward by the government.

The aid plan to Portugal was finalised on 6th May last. Over 3 years it will total 78 billion € and is conditioned by the adoption of austerity measures. The next Portuguese government will have to balance public finances and implement structural reform in order to restore the country's competitiveness and reduce public debt. Indeed the EU is demanding that Lisbon adopt an 'adjustment plan', i.e. both budgetary savings measures and structural reforms which involve the main political parties. The public deficit will have to be brought down to 5.9% of the GDP this year, 4.5% in 2012 to reach 3% in 2013 i.e. the limit set by the Stability and Growth Pact.

Fernando Teixeira dos Santos presented the programme's main measures; reduction of the highest retirement pensions to 1,500€, a 500 million € reduction in healthcare spending, a reduction in over-time payments, the length of time (18th months) covered by unemployment benefits as well as the amount granted, increases in VAT on some products, the postponement of funding of major infrastructure projects, a more flexible labour market, privatisation programmes, a reduction of tax benefits, a rise in payments on private property, the balancing and recapitalisation of the banking sector (a package that may total 12 billion € has been made available to the banks). The outgoing Finance Minister announced that this programme would lead to a contraction in the economy of around 2% in 2011 and 2012 and a rise in unemployment up to 13% by 2013. "It is a good agreement that defends Portugal," declared Prime Minister José Socrates on 3rd May.

The IMF and the EU have demanded guarantees on the implementation of this programme whatever the result of the election on 5th June. "Any slacking in discipline will lead to the immediate end of aid," warned Dutch Finance Minister Jan Kees de Jager. The Social Democratic Party (PSD) and the Popular Party have promised to respect the economic programme goals. PSD Chair Pedro Passos Coelho said that "he would not let the country fall into bankruptcy." Against international intervention the anti-liberal parties – the Communist-Green Party Coalition (CDU) and the Left Bloc (BE) refused to take part in the negotiations.

A Country in Distress

"The next government will face an unprecedented economic and financial crisis," declared President Cavaco Silva. The task of the future government will indeed be of size; the electorate's choice will therefore be limited on 5th June since whoever wins there will be at least a three year obligation to implement the austerity programme that has been put together with the international organisations. At the end of April the Head of State launched an appeal for responsibility on the part of the political parties. "Given the challenges ahead the government that is formed after the general elections on 5th June next will have to have a majority support of the Assembly of the Republic," he declared during the celebrations of the 37th anniversary of the Carnation Revolution that symbolises the fall of the dictatorship established in 1932 by Salazar. "I think that an agreement between the Socialist Party, the Social Democratic Party and others who are interested is possible and desirable. Never has dialogue and negotiation been as necessary as now;" stressed Prime Minister José Socrates.

The Portuguese economy depends mainly on agriculture and tourism, the country's industrial infrastructure is weak. Portugal is greatly dependent on neighbouring Spain, which is also in the midst of a serious socio-economic crisis. Portugal faces a major problem of competitiveness. It has lost a great deal of market share because of a decline in exports (16% less) and a rise in the wage burden (the hourly cost of labour/hourly productivity ratio) which rose by 9% between 1999 and 2007. Over the same period the wage burn in Germany fell by 12%. Economic analysts are expecting a GDP contraction of 1.4% this year. The country's public deficit was reviewed upwards (9.1% instead of 8.6%) likewise the debt (93% instead of 92.4%). The financial institutions believe that the Portuguese government must reform the labour market as a priority and also reduce the weight of the public sector.

The Electoral Campaign

The outgoing Head of government, José Socrates was re-elected on 27th March last as head of the Socialist Party with 93.3% of the vote. "I shall fight for the PS's victory," he declared accusing the Social Democratic Party (PSD) of having "thrown Portugal into the IMF's arms" by voting against the new version of the rescue plan that he had presented. "The Portuguese know how to assess what happened. This political crisis has been a total disaster, reckless, irresponsible. The Portuguese know that those capable of such irresponsibility to satisfy their own partisan interests are not worthy of governing the country. It will be costly for Portugal and the Portuguese who do not deserve it," stressed the outgoing Prime Minister during the PS Congress.

Fernando Nobre, founder of the NGO International Medical Assistance (IMA) and independent candidate for the Presidential election on 23rd January 2011 (14.1% of the vote) was the source of uproar when he accepted to lead a PSD list on 5th June. "If the Social Democrats win Fernando Nobre will become the leader of Parliament," announced the PSD leader Pedro Passos Coelho.

This alliance was highly criticised by the PS but above all by the Left Bloc which the IMA's founder supported during the European Elections on 7th June 2009. The Socialist candidate in the presidential election Manuel Alegre also said that Fernando Nobre did not have the experience required to lead Parliament. Talking of a "dramatic situation" that Portugal is experiencing at present the latter justified himself saying "that the fact of being independent does not exempt us of the responsibility of contributing to a collective future."

On 9th April last 47 personalities launched an appeal in the weekly Expresso in a bid to overcome the crisis and to restore the country's foreign credibility. Artists such as film maker Manuel de Oliveira, author Antonio Lobo Antunes and architect Siza Vieira, former political leaders such as former Presidents of the Republic Ramalho Eanes (1976-1986), Mario Soares (1986-1996) and Jorge Sampaio (1996-2006), as well as intellectuals, company heads and men of the church such as Manuel Clemente, the Bishop of Porto signed the text.

"The next general elections require calm and an objective level of information on the nation's real situation which are not guaranteed at the moment," says the text which calls on the President of the Republic , the government and the main parties to come to an agreement "to guarantee the execution of an immediate action plan that will make it possible to guarantee the economy's foreign credibility and for it to run normally"; it calls on political leaders to "ensure that the next government will be supported by an unequivocal majority which is vital to building a minimum consensus (...) on the budgetary consolidation process and the adjustment trajectory planned for in the most recent version of the stability and growth programme." In the signatories' opinion of the 47 Appeal, this is vital "so that the Portuguese can find logic in the sacrifices they have to make now and for them to have hope in the future."

The Portuguese Catholic Church has called for a "wide political consensus" for the general election. "With the same absolute majority – a wide consensus is important, vital even in these circumstances," declared the Episcopal Conference spokesperson, Manuel Marujão.

The Portuguese Political System

The Portuguese Parliament is monocameral. Its only chamber, the Assembly of the Republic, comprises 230 members elected for 4 years by a proportional list system within 20 constituencies.

5 political parties are represented in the Assembly of the Republic at present:

- the Socialist Party (PS) of Prime Minister José Socrates. Founded in 1973 it has 97 seats;

- the Social Democratic Party (PSD), the main opposition party created in 1974 and led since March 2010 by Pedro Passos Coelho, has 81 MPs;

- the Popular Party (PP), formerly Social Democratic Centre/Popular Party (CDS/PP), the Christian Democratic member of the opposition, led by Paulo Portas has 21 seats;

- the Left Bloc (BE), founded in 1999 and led by Francisco Louca who succeeds in convincing the young and urban dwellers, notably those living in the two biggest cities, Lisbon and Porto –has 16 MPs;

- the Communist Party (PCP), created in 1921 and led by Jeronimo de Sousa, has 15 seats.

The Portuguese also elect the President of the Republic by universal suffrage every five years. Anibal Cavaco Silva (PSD) was re-elected with 52.94% of the vote on 23rd January 2011 in the first round, a "custom" in Portugal. He is the first liberal Head of State since the Carnation Revolution on 25th April 1974.

Whilst the Social Democratic Party (PSD) had been forecast winner in the polls since the resignation of the government two more recent polls credit the Socialist Party (PS) led by José Socrates with a majority of the vote. According to the poll undertaken at the end of April by Marktest for the Diario Economico and radio TSF, the PS is due to win 36.1% of the vote whilst the PSD is due to win 35.3%; the Communist-Green Party Coalition 8.1%, the Popular Party 7.5% and the Left Bloc 6%. "This shows that we still haven't won the elections and that we shall have to work harder," declared PSD leader Pedro Passos Coelho after the poll was published. For the first time since September 2010 the rightwing opposition forces are due to win under 50% of the vote. Another poll by Eurosondagem and published at the same time as the one by Marktest credits the PS with 36.3% of the vote and the PSD with 32.7%.

Source : Portuguese Electoral Commission http://eleicoes.cne.pt/vector/index.cfm?dia=27&mes=09&ano=2009&eleicao=ar