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Portugal Ousts Ruling Socialists, Moves Toward Austerity

  • Lauren Frayer

Pedro Passos Coelho (L) leader of the center-right Social Democrat Party, PSD, is received by Portugal's President Anibal Cavaco Silva, June 6, 2011, at Belem presidential palace in Lisbon

Pedro Passos Coelho (L) leader of the center-right Social Democrat Party, PSD, is received by Portugal's President Anibal Cavaco Silva, June 6, 2011, at Belem presidential palace in Lisbon

The new conservative prime minister is expected to slash public spending and privatize state industries, in an effort to try to tamp down Portugal's spiraling debt crisis and prevent it from being a further drain on Europe.

Supporters of the center-right Social Democrats are celebrating in the streets of Lisbon. The Social Democrats ousted Portugal's ruling Socialist Party and are expected to form a new coalition government.

That new government will be tasked with implementing austerity measures tied to a more than $114 billion bailout from the European Union and International Monetary Fund.

The man tasked with leading Portugal into this new age of austerity is the leader of the Social Democrats, Pedro Passos Coelho. He is a former businessman who has never held public office. But he says he wants to try to help Portugal earn back the trust of investors.

"I hope that the new step we are beginning now, could be the first step to a new hope for Portugal, to have a new credibility outside Portugal, and to restore confidence in the markets," said Coelho.

The incumbent prime minister, Jose Socrates, admitted defeat and said he would also resign as his party's leader.

Portugal's Socialists are the latest ruling party to suffer at the polls, as high unemployment and public debt sweep southern Europe. Three weeks ago, the ruling Socialist Party in neighboring Spain lost control of many municipalities it long considered strongholds, and is forecast to lose control of Spain's parliament in elections next year.

Portugal is one of three eurozone economies to seek EU bailouts. Greece and Ireland also have suffered political backlash from their constituents.

Iain Begg, a Europe economist at London's Chatham House, says Portugal's election results are in line with what has happened across Europe. Governments in power during the economic crisis have been blamed for it.

"The government that's getting the blame for it is the one that's being kicked out, and the government that's now doing the difficult task, it's hoping that it will be re-elected because it's confronted the problem," said Begg. "So we see volatile politics across much of Europe."

There is some optimism in Portugal, at least among Mr. Coelho's supporters, that a new government might improve conditions for citizens struggling with rising costs and stagnant wages. This voter says she is happy about electoral change.

"I'm so happy," said a Coelho supporter. "I'm so proud for Portugal and for this voting. It's everything we needed right now. I'm so, so happy."

But Begg says Portugal's new Social Democratic-led government can expect huge challenges ahead.

"A long slog. They have to collect the balance of payments deficit, they have to correct the public sector accounts deficit, and they have to make sure that the structural reforms, the long-term supply -side reforms, are on track," said Begg. "All of that simultaneously - which is never easy when the economy is not growing."

Begg says Mr. Coelho would do well to try to implement austerity measures as quickly as possible.

"A government coming into power has the mandate to make the hard decisions quickly," Begg added. "They say, 'Let's get all the bad news out of the way so that when it comes around to our re-election period, it will be forgotten. We will have already made the hard choices.'"

Mr. Coelho has promised to privatize some Portuguese state industries and scale back infrastructure projects, such as plans for a new high-speed railway.