Portuguese election risks creating stalemate

LISBON, Portugal — Portugal's elections for a new government on Sunday risk delivering a messy political stalemate that could delay urgent economic reforms and aggravate Europe's debt troubles.

The center-left Socialist government, which two months ago had to ask for a €78 billion ($112 billion) bailout to keep the country from bankruptcy, has defied expectations of a heavy defeat and is holding roughly level with the main opposition center-right Social Democratic Party. Polls have shown each of them collecting around 35 percent of the vote, with three other parties trailing far behind.

That presents a problem because the winner is unlikely to collect more seats in Parliament than all its opponents combined, meaning the opposition together would be able to thwart the new government's strategy.

Enacting major economic reforms — a condition of the bailout and viewed as crucial to strengthen Portugal's feeble, debt-burdened economy — needs broad political consensus to succeed. Otherwise, the endeavor could be doomed amid public outrage over plans for more tax hikes and pay and welfare cuts amid a record 12.6 percent unemployment rate.

"Given the reforms the economy has to go through ... you really need a strong government and cross-party consensus as well," said Diego Iscaro, an analyst at IHS Global Insight.

Domestic political squabbling in Greece, for example, has increased market pressure on that country to a point where it is expected to need a second rescue package, or more drastically, to arrange some form of default on its debts.

Portugal will be eager to avoid such a scenario. As well as damaging prospects for national recovery, political uncertainty in Lisbon could undermine efforts to draw a line under the debt crisis that has tormented the 17-nation eurozone for more than a year and could yet spread to bigger countries such as Spain, Italy and Belgium.

"The eurozone isn't going to want to have more problems on its hands than Greece," said Vanessa Rossi, an economic analyst at the London think-tank Chatham House.

All three main parties — including the smaller, conservative Popular Party, which is forecast to claim around 13 percent — gave their blessing to the debt-reduction conditions attached to the bailout, but they differ on how best to achieve the saving targets and generate wealth.

And the chances of the three leading parties clinching a broad consensus look gloomy due to personal animosity between the party leaders and a bad-tempered election campaign.

The leaders of the Social Democrats and the Popular Party say they will refuse to work with outgoing prime minister Jose Socrates if he remains as Socialist leader. The Social Democrats and Popular Party, traditional allies, disagreed with the Socialists' debt-reduction plans and joined forces in March to oust the government, bringing the early election.

The Portuguese Communist Party and its like-minded rival the Left Bloc, which are each expected to get less than 10 percent, have fought against economic liberalization but could potentially support the Socialists in Parliament.

The Socialists want to keep the state at the helm of economic recovery, directing investment towards modernization. The Social Democrats want private enterprise to take the lead.

Socialist leader Socrates, who has been prime minister during the last six years of Portugal's decline, has held a surprising level of support by shrewdly playing on public fears that his main rival wants to scrap long-standing entitlements such as free schooling and health care.

He says the Social Democrats have a "radical rightwing agenda" to privatize public services.