Portugal's ruling coalition defeats socialists in election

[LISBON] Portuguese Prime Minister Pedro Passos Coelho declared victory in the nation's first general election since regaining its economic sovereignty.

Mr Coelho's Social Democrat and Christian Democrat coalition took 94 of the 230 seats in Portugal's parliament, with 21 seats still to be attributed. The Socialist opposition has 79 seats so far.

"It's unequivocal that this election has resulted in a winning political force," Mr Coelho told supporters in Lisbon late Sunday. "That winning political force is the coalition."

While Mr Coelho lost his majority in parliament, he decisively defeated Socialist leader Antonio Costa by focusing on the country's economic progress, underscored by its exit from an international bailout in 2014. Under Mr Coelho's stewardship, the economy is growing again, unemployment is dropping and the fiscal deficit is narrowing.

"What's important is that voters opted for continuity. That's pretty positive," said Steven Santos, a broker at Banco de Investimento Global SA in Lisbon. "Of course, there's still the problem of political instability if the coalition needs to manage with a minority government."

Portugal is no stranger to forming minority governments, and they can survive with the aid of opposition parties. For example, the Social Democrats in 2010 allowed the Socialist minority's budget proposal to pass by sitting out a vote.

SHORT-LIVED

For all that, Portugal's minority administrations tend to be short-lived. It's more than 15 years since Socialist leader Antonio Guterres led the only minority government in Portugal to survive a full term since 1974, when a four-decade dictatorship ended.

Mr Coelho's Social Democrats and the smaller conservative CDS party ran separately in the previous general election in 2011. Then, they won a combined 50 per cent of the vote, giving them 132 seats in the 230-seat parliament. The Socialists won 28 per cent of the vote, getting 74 seats.

The coalition took over from the Socialist minority government that in April 2011 followed Greece and Ireland in requesting a three-year bailout from the European Union and the International Monetary Fund. Portugal sold assets, raised taxes on everything from wages to diesel cars and reduced spending by 11 billion euros (S$17.7 billion).

During Mr Coelho's reign, Portugal has largely avoided the instability which has rocked Greece, with the two blocs fighting for power broadly committed to reducing the deficit, though quibbling over the pace of debt reduction.

While austerity fueled the rise of Podemos in Spain and Syriza in Greece, no equivalent party has made strides in Portugal, and the nation's 10-year bond yield has dropped to 2.3 per cent from 18 per cent three years ago as investors were reassured by the government's austerity program.

Mr Coelho's failure to keep his majority will pose new challenges, analysts said.

"In contrast to the relative stabi­lity that has characterised Portugal in the last four years, the political backdrop is set to deteriorate," said Antonio Barroso, an analyst at Teneo Intelligence in London. "Political stability could become a challenge very soon, possibly as early as next year as the government tries to get support in parliament for the 2017 budget."

BLOOMBERG