The socialist defends strict budgetary discipline.
(Photo: imago images / GlobalImagens)
Madrid The timing could hardly be worse: In the middle of the reconstruction, the government in Portugal is falling apart. The country has been hit hard by the corona crisis, with gross domestic product falling by 8.4 percent last year.
The reason for the national crisis is the same for which Portugal has a lot of respect internationally: Prime Minister António Costa’s budget discipline. His draft budget for the coming year envisages that the deficit will fall from the estimated 4.3 percent this year to 3.2 percent next year and thus almost meet the Maastricht criterion of three percent again.
Costa had also planned higher spending on the national health system, an increase in the minimum income, and higher pensions and civil servants’ salaries. But that was not enough for his partners – the communists and the radical left-wing Left Bloc.
They had called for higher increases and voted against the budget on Wednesday evening together with the opposition conservatives. Communists and the Left Bloc said that Costa had, among other things, disregarded their demands for better worker protection and focused too much on reducing the budget deficit.
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The crisis in Portugal shows how difficult it is to return to the stability criteria in the EU countries.
So far, socialists from all over Europe have looked at Portugal with envy
A lack of budget is not a compelling reason for a new election. Before the vote, however, President Marcelo Rebelos de Sousa had already announced that he would dissolve parliament and call new elections if parliament does not agree on a budget for 2022. Costa ruled out a resignation and announced that he would lead the interim government until the new elections, which will probably take place in January, two years before the regular polls.
With new elections, an alliance would come to an end that socialists from all over Europe had looked envious of. Costa prides itself on having found an alternative route to austerity that generates more growth while ensuring sustainable finances.
With the help of a booming global economy, he succeeded in doing this in his first term in office from 2015. He reduced the national debt from 131 percent of economic output to 117 percent in 2019, the year before the pandemic. Growth was 2.5 percent in 2019, and it turned the budget deficit of 4.4 percent into a positive balance of 0.1 percent.
To the end, Costa tried to make clear to his left partners the importance of solid finances. “The right finances ensure international credibility,” he said during the budget debate. “The right finances made it possible for us this time to respond to the pandemic crisis with solidarity and not with austerity.” But it didn’t help: Portugal has the third largest national debt in the EU after Greece and Italy.
Reconstruction could be delayed
The political crisis could delay the all-important reconstruction in Portugal. New elections would not take place before January, and no new budget should be before April.
During the transition period, the so-called rule of twelfth applies in Portugal. It says that without a new budget, only one twelfth of what the state had consumed in the previous year can be spent each month. This could mean that the money from the European reconstruction fund could also hang in the air until a new budget is reached. Portugal receives 14 billion euros from the EU in non-refundable transfers.
Early new elections seem to be of no use to anyone. “Costa’s partners on the left will lose votes,” predicts António Costa Pinto from the Institute of Sociology at the University of Lisbon.
They would still have set it on the break: “The conditions that you put Costa for their votes on the budget were so high that he could not meet them.” He sees the motive for the fact that communists like the left bloc from the Support for Costa no longer expect any advantages for themselves.
Some analysts now fear that Portugal will face a fragmented parliament after the election and no government will come into existence. The right-wing opposition is caught in an internal power struggle over the party leadership and, in polls, is well behind the socialists. According to a poll by the Portuguese business newspaper “Jornal de Negocios” at the end of September, the socialists would get 37 percent of the vote in new elections and the conservative PSD 25 percent of the vote. Currently, the most social in parliament hold 108 of the 230 seats.
More: That is the formula for success of Portugal’s socialists