WHEN PORTUGAL’S socialist prime minister José Sócrates presents his budget for 2011 today, he will open the floodgates for a political crisis which could bring down his already unpopular minority government.
Like so many other euro zone economies such as Ireland, Spain or Greece, Portugal’s is deeply troubled. The budget deficit is 9.3 per cent, its public deficit is more than 82 per cent and unemployment is at a 20-year high of 10 per cent. All of which are forcing the government to take painful measures.
“We have known for months that our economy was in trouble and our debt was among the worst in Europe. The Sócrates government has delayed too long in confronting our problems because they knew they would be unpopular and could unseat them,” said one Lisbon banker yesterday.
The finance minister last week confirmed that the government would propose tough austerity measures similar to those the Zapatero government has introduced in Spain. Lisbon plans to reduce the salaries of public sector workers by 5 per cent, freeze pensions, raise VAT from 21 per cent to 23 per cent and increase income tax.
Last week CGTP, Portugal’s largest trade union, called for a general strike on November 27th, the first since 2007. Similar protests have been taking place in Greece, France and Spain, where a general strike last month paralysed much of the country. The socialist UGT union has still to decide whether to join in the protest.
The government was not surprised to meet opposition to these unpopular measures. “Of course we will face protests, but we have to remain firm,” said Fernando Teixeira dos Santos, the finance minister who is meeting representatives of the smaller parties to win their support in the crucial vote.
Mr Sócrates has threatened to resign and call general elections if his budget is not approved on October 29th, opening the door to a prolonged period of uncertainty with a caretaker government which would have insufficient political clout to negotiate financial bailouts with international bodies and probably cause a sell-off of Portuguese bonds.
President Aníbal Cavaco Silva will stand for re-election in the January presidential elections, and under Portugal’s electoral law it would be impossible to hold general elections before May next year.
The main opposition Social Democrats (PSD), with 81 seats in the 230 seat assembly, backed the government in earlier austerity measures last May, but has not yet decided whether to support the budget and keep Mr Socrates in power or to vote against it and bring down the government.
The centre-right PSD has repeated many times that it would never support any increase in taxes. The party leader Dr Pedro Passos Coelho only took over in March this year and it is not known how he will react this time. “He is something of an unknown quantity, we don’t really know how he will react,” said Coimbra teacher Catalina Gomes.
On Wednesday, Dr Passos Coelho held over two hours of meetings with a group of Portugal’s top bankers when they warned him of the dangers of bringing down the government. Ricardo Salgado, president of the private sector of Portugal’s largest bank, Banco Espiritu Santo, left the meeting saying he was “confidently optimistic” that a solution could be found.