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Portugal mulls way out of recession in elections

By Barry Hatton

Associated Press

Published: Saturday, June 4 2011 6:55 a.m. MDT

Portugal's interim Prime Minister and Socialist Party leader Jose Socrates reacts during a political rally in Lisbon on the last day of election campaigning, Friday June 3, 2011. Portugal's elections for a new government on June 5 risk delivering a messy political stalemate that could delay urgent economic reforms and aggravate Europe's debt troubles.

Paulo Duarte, Associated Press

LISBON, Portugal — Portuguese voters elect a new government Sunday amid a steep decline in living standards as the deeply indebted country enacts painful austerity measures in return for a €78 billion ($114 billion) international bailout.

As in Greece and Ireland — other eurozone countries that required financial rescue to avoid imminent bankruptcy — the ballot is forecast to unseat the government and bring the main opposition party to power.

Though all the main parties have given their blessing to further pay cuts and tax hikes aimed at restoring Portugal's financial health, any signs the country is straying from debt-reduction targets would place more strain on Europe's efforts to draw a line under a debt crisis that has dragged on for more than a year.

The election, the second in two years, comes after opposition parties rejected the outgoing Socialist government's austerity policies three months ago, prompting the resignation of Prime Minister Jose Socrates' administration and an unscheduled ballot.

Opinion polls indicated the center-right Social Democratic Party would collect around 36 percent of the vote and the center-left Socialist Party, which has governed over the past six years of economic decline, about 31 percent.

That result would leave the Social Democrats short of an absolute majority in the 230-seat Parliament, potentially enabling opposition parties to group together and defeat their plans.

Analysts expect the Social Democrats to invite the smaller, conservative Popular Party — forecast to gather about 12 percent — to join a coalition government if they need to bolster their parliamentary majority.

Pedro Passos Coelho, 46, would become prime minister if his party wins. He has little political experience beyond an eight-year spell as a lawmaker in the 1990s, after which he went into business before being elected party leader 15 months ago. He has billed his business-friendly party as the one best-suited to run the country efficiently.

"We are going to cut state waste and excesses while finding a way for the needy to get what they need," he told a party rally.

Socialist Party leader Jose Socrates, prime minister for the past six years, appears to have avoided a heavy election defeat by playing on public fears about Social Democrat plans to privatize some public services.

"If you think social protection programs are important, vote for the Socialist Party because our policies ensure the welfare state," he told his last rally late Friday.

Ana Sousa, a 45-year-old Lisbon psychologist and mother of four, said most of all she was looking for change and would give her vote to the Social Democrats in the hope they would get enough power to push through necessary reforms.

"They won't be able to work miracles, but we can't go on as we have been," she said outside a local soccer stadium Saturday, an official "day of reflection" when campaigning is prohibited. "It's all about changing."

Portugal's bailout agreement with its European partners and the International Monetary Fund locks it into a three-year program of debt-cutting policies and far-reaching social and economic reforms devised to revive the economy.

The immediate outlook is grim. The IMF predicts a recession as the economy contracts 4 percent over the next two years. Unemployment stands at a record 12.6 percent and is forecast to rise further.

After more than a decade of meager growth, Portugal — already one of western Europe's poorest countries — needs a substantial makeover. The bailout deal demands wide-ranging changes to improve the justice and education systems, for example.

But successive governments have tried to reform those sectors for years with little success, and the new administration will likely face strikes and protests from trade unions fighting to save workers' entitlements, especially job security.

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