Portuguese vote in shadow of bailout

LISBON (Reuters) – The Portuguese went to the polls on Sunday to elect a new government which will lead the nation through a period of deep austerity and recession after it received a 78-billion-euro (114-billion-dollar) bailout from the European Union and IMF.

The election will end a period of political uncertainty that started with the collapse of the Socialist government in March and led Lisbon to become the third country in the euro zone to seek a bailout after Greece and Ireland.

The Portuguese, who face unemployment at its highest level in three decades, are expected to reject caretaker Prime Minister Jose Socrates in the snap ballot and turn to opposition center-right Social Democrat Pedro Passos Coelho.

Passos Coelho, who cast his vote at a polling station in Amadora on the outskirts of Lisbon, where reporters by far outnumbered voters, said Portugal had to stick to the bailout terms to regain market confidence and return to growth.

“You know that we now have a very difficult period for the next two or three years. But I’m sure that we will make the necessary change and Portugal will achieve new prosperity with economic growth in the next two to three years,” he told reporters in English.

“In the markets, we will only have confidence if we are committed to the memorandum of understanding reached with the European Union and the International Monetary Fund,” he said, adding that he was hoping for a “great result” in the ballot.

The latest opinion polls gave Passos Coelho around 37 percent support compared with 31 percent for Socrates, which will most likely mean that the Social Democrat will need to team up with the smaller rightist CDS party to form a majority in parliament.

Antonio Barroso, Europe analyst at Eurasia, said such a rightist coalition government was the most likely election outcome.

“This would be the most straightforward option if the Social Democrats and CDS can secure an absolute majority between them,” Barroso said in a research note.

“Both parties are strongly committed to the implementation of the bailout conditions and would easily negotiate a common economic program.”

The CDS has about 12 percent backing in polls.

“PARTICULARLY DECISIVE”

The formation of such a center-right government would be welcomed by investors, who lost faith in the country in the past few months, dumping its bonds and sending borrowing rates to euro-era highs.

President Anibal Cavaco Silva addressed the nation late on Saturday, asking people to vote and calling the election “particularly decisive” because Portugal “is submerged in a deep economic and social crisis.”

But Ricardo, a voter in his late 20s, expressed a common view that any new government just has to march to the beat of the lenders’ drum.

“I think the election won’t bring anything new because it’s the IMF in charge of the country now … Any party that gets to the government will just have to follow IMF rules, ” he said.

A center-right coalition government should be able to quickly enact reforms and austerity measures included in the bailout, such as sweeping tax hikes and deep spending cuts, to ensure the country reduces its large debts.

But Portugal’s economy is expected to contract two percent both this year and next, raising tough challenges for any incoming government as the disposable incomes of the Portuguese decline and austerity takes its toll.

So far there have been few strikes and protests against the austerity, unlike in Greece and in neighboring Spain, but as the country’s recession deepens that could change, analysts say.