Portuguese voters will go to the polls on Sunday (4 October) to renew their unicameral parliament. This election appears to be a non-event for the country’s creditors, as well as the European institutions.
Portugal is not bracing for a political earthquake, and the financial sector is so calm about the vote that the rating agency S&P has released its latest credit rating even before the election has taken place.
The ‘Portuguese miracle’?
The outgoing legislature was marked by a severe dose of austerity, punctuated by large-scale demonstrations in 2012 and 2013. The measures enacted by the ECB, falling energy prices, the relaxing of austerity policies and enhanced competitiveness have all helped improve the situation in the country.
Unemployment fell by two points to 12.1% in one year, and defenders of austerity in other countries often hold up Portugal as a shining example of best practice. German Minister of Finance, Wolfgang Schäuble, highlighted the Portuguese turnaround during the Greek crisis as proof that “efforts pay”. But in reality, the country is still in a worrying position.
A difficult economic situation
Unlike Ireland or Spain, Portugal has not experienced a post-austerity boom. Its economic growth has been weak for a country that has made brutal cuts to salaries.
In 2014, the Portuguese state cut its payroll by 2.3%. The country’s economy grew by 0.5% during the first two quarters of this year, but the European Commission predicts annual growth of 1.6% for 2015 and 1.8% for 2016. The IMF predicts only 1.4% and 1.5%.
Compared to the vast economic contraction of 8.9% between the third quarter of 2011 and the second quarter of 2015, this is very weak. Portuguese GDP is still 22% lower than the eurozone average in terms of purchasing power parity.
The fall in unemployment is also fragile, as almost 90% of the change is due to temporary construction projects and economic emigration. 121,000 Portuguese citizens have left the country in the four years since austerity policies were first imposed; a phenomenon not witnessed since the Salazar government.
And the country has been left with a considerable public and private debt, which will only continue to grow as economic growth and inflation stagnate. Portuguese private and public debt is equal to 400% of the country’s GDP. A situation that is obviously untenable in the medium and long term. In short, the ‘Portuguese miracle’ is a myth.
The right with the wind in its sails
But for several weeks, the ruling right-wing coalition of the Social Democratic (PSD) and Conservative (CDS-PP) parties, known as ‘Portugal a Frente’, has been leading the polls. This alliance was for a long time neck and neck with the Socialist Party, but currently holds a comfortable lead.
According to Electograph, a polling company, Portugal a Frente holds a five to seven point lead over the Socialists, with between 38% and 40% of votes.
Is this the triumph of a population that has (finally!) understood the virtues of ‘effort’? Perhaps, but it merits a closer look.
Why the right is so popular
The apparent rise of the Portuguese right is due to a number of factors. First among these is the economic upturn. Many Portuguese citizens are understandably relieved to see the country coming out of recession, and the fall of unemployment is an argument in favour of political stability.
But the success of Portugal a Frente is not purely down to falling unemployment. In August, at the time when the right began its rise in the polls, unemployment actually increased to 12.4%.
Another explanation can be found in Greece. Portuguese voters may never have been tempted to experiment with parties like Syriza, but the inability of Alexis Tsipras to throw off the yoke of debt and creditors certainly helped to subdue the left, despite attempts by the Portuguese Socialist Party (PS) to take an anti-austerity line.
This situation had three distinct effects on the electorate. The first was to make voters choose ‘security’ by electing a government favoured by the country’s creditors. The second was to punish the Socialist Party for its hazy economic discourse, to the benefit of the more radical left.
The radical ‘Left Block’ (BE), which has turned Eurosceptic after the events in Greece, has risen in line with the decline of the PS. Between 16 July and 28 September, the BE almost doubled its support among the electorate from 4% to 7.1%. At the same time, PS support fell from 38% to 31.8% and the right rose from 37.8% to 39%.
The final explanation is the outright rejection of politics by a large part of Portugal’s electorate. All the polls indicate that the number of voters that are undecided or intend to abstain from Sunday’s election has greatly increased since July.
According to polling company Aximage, this group has risen from 10% to 13.6% of the voting age population. This is a phenomenon that deserves to be highlighted: the closer the country comes to the elections, the less motivated Portuguese voters appear to be.
Antonio Costa Pinto, a political analyst, told Bloomberg he feared the abstention rate could even beat the record of 41.9% of registered voters set in 2011.
Austerity and the example made of Greece appear to have led to a rejection of politics and general disillusion among Portuguese voters.
A ‘victory for austerity’?
So despite the strong position of the political right, it would be wrong to declare a ‘victory for austerity’. The two radical left parties, the CDU (a communist coalition) and the BE, could together collect around 15% of the vote. In 2011, they won 13% of the vote, already a large share for the radical left in Europe.
Portugal may not have an opposition like Syriza or Podemos, but the left is still strong. In Spain, for example, even Podemos would struggle to win more than 15% of the vote in a general election.
But even the success of Portugal a Frente is relative. In 2011, the coalition won 50.4% of the vote. Although if it remains the country’s strongest political force, the growing abstention rate is likely to cost the governing coalition between 10% and 12% of its votes in this Sunday’s election. Seen in this light, any victory for the right would be very relative, and would not necessarily reflect a broad public approval for austerity.
One important area of uncertainty persists: who will govern the country after the election?
The Portuguese electoral system is similar to the Spanish one. The 230 members of parliament are elected using the D’Hondt system of proportional representation, calculated in each of the country’s 22 constituencies.
This system tends to favour larger parties, while squeezing out the smaller ones. In 2011, the PSD won 38.6% of the vote, but took 45.6% of the seats (105 of 230). In the same election, the Left Block, the smallest parliamentary party, won 5.2% of the vote and only 3.5% of the seats (8 of 230).
Absolute majority for the right?
By presenting a united front, the Portuguese right hopes to benefit from the electoral system to win an absolute majority. But the left, including the PS, the CDU and the BE, is still likely to poll close to 50% of the votes, without even counting the Maoist PCTP (1.1% in 2011) and the Livre party, a kind of ‘moderate Podemos’, expected to poll at around 2%.
These divisions could prevent the left winning a parliamentary majority, even if they win over 50% of the popular vote; an outcome that cannot be ruled out.
The feasibility of a left-right coalition
The most likely outcome is that nobody will win an absolute majority. In this case, three possibilities will arise.
The first will be for the left to form a minority government. This would be a challenge, as a united right could cause parliamentary gridlock. Under such circumstances, a minority government could hardly hope to govern successfully.
If the PS comes second, it could perhaps fall back on the informal support of the CDU and/or the BE. This situation would closely resemble the second possibility: a left-wing coalition.
But is this much mooted alliance possible in practice? The CDU and the BE are highly sceptical about Portugal’s ability to throw off the yoke of austerity whilst remaining in the eurozone, but have expressed their readiness to work with the PS.
For its part, the PS is in favour of remaining in the eurozone and cutting the deficit, while reducing austerity. But any formal collaboration would be far from simple, as the policies and ideals of the CDU and the BE also differ greatly in a number of areas.
Towards a grand coalition?
That leaves just one possibility: a grand coalition between the PS and the right, or a minority right-wing ‘reformist’ government, with the informal support of the left. For both economists and the markets, this is the most likely outcome.
This may not be the most credible option. It is hard to imagine the PS supporting the current prime minister, who symbolises a brand of austerity politics that sometimes outstripped even the Troika.
In short, political deadlock cannot be ruled out, and contrary to what we might hear on Monday morning (5 October), whatever the election result, it will surely not constitute a resounding endorsement of austerity.