Portuguese Premier Set to Be Ousted as Socialists Eye Power

  • Socialists, Left Bloc, Communists unite to replace premier
  • Political shift would speed end to post-bailout spending cuts

A loose alliance of Portuguese opposition parties is poised to vote Prime Minister Pedro Passos Coelho’s government out of power on Tuesday, threatening to prolong political instability on the euro area’s southwestern edge.

Portugal’s 10-year bonds were little changed on Tuesday, after the yield jumped to a four-month high on Monday amid concern that spending cuts tied to the country’s international bailout might be rolled back. The Socialist Party, led by Antonio Costa, says it plans to join forces with three other parties to oust Coelho’s administration through a parliamentary ballot.

The Socialists, Left Bloc and Communists have more than half the lawmakers in parliament and have said they will unseat Coelho just a month after he won the most seats in Portugal’s general election. Coelho, a Social Democrat, has struggled to form an administration after his coalition fell short of the majority it held during the past four years as he steered Portugal though its financial rescue.

“We’re already paying a certain price for the uncertainty around the end of this debate and what eventually might happen after,” Coelho said in parliament on Monday.

The premier will fall if the Socialists and their allies make good on their pledge to join forces to reject his policy program. President Anibal Cavaco Silva, who has the power to name prime ministers, would then face a choice: ask Costa to form a government, let Coelho stay on as caretaker or try to find another premier. Parliament can’t be dissolved for six months after the election, meaning Cavaco Silva can’t call another election now.

Left Bloc, Communists

Lawmakers started discussing the Coelho government’s program on Monday and resumed the debate at 10 a.m. on Tuesday with a vote due later in the day. The Socialists, Left Bloc, Communists and Greens on Tuesday submitted to parliament their separate motions to reject the government’s program.

“It’s a strange debate because we’re discussing a government program that never was and a prime minister that soon won’t be prime minister,” Left Bloc leader Catarina Martins told lawmakers on Monday.

The Left Bloc has said it wants to restructure the country’s debt, while the Communists have said Portugal should prepare to exit the euro. The Socialists, who requested the bailout and then lost the 2011 election, have voted with Coelho’s coalition on policies including the treaty establishing the European Stability Mechanism rescue fund.

‘Political Center’

“The Socialist Party is moving away from the political center,” Coelho said. “It’s radicalizing its position.”

Portuguese 10-year yields were at 2.83 percent on Tuesday after rising to as much as 2.91 percent on Monday, the highest since July. After peaking at 18 percent three years ago at the height of Europe’s debt crisis, the yield fell to as low as 1.5 percent in March and 2.3 percent just before the Oct. 4 election.

The Socialists are trying to return to power after Coelho led the first coalition government to survive a full term in office since four decades of dictatorship ended in 1974. He had to implement much of the aid program that the Socialists had agreed.

“We have been the firemen of your rescue,” Vice Premier Paulo Portas, who leads junior coalition party CDS, told his opponents during Tuesday’s debate.

Costa’s proposed program includes a gradual increase in the minimum wage and a proposal to study changing income-tax brackets and taxing any inheritance of more than 1 million euros ($1.1 million). The Socialists also want to reverse state salary cuts and bolster family incomes. The budget deficit is forecast to be lower than the European Union limit of 3 percent of gross domestic product through 2019.

The ruling coalition parties took 107 of the 230 parliamentary seats in last month’s election, including 89 for Coelho’s Social Democrats. The Socialists have 86 members of parliament, while the Left Bloc and Communists hold 19 and 15 seats, respectively. The Greens have two lawmakers.

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