Portugal gov't set for defeat in local elections

Portugal's ruling coalition set for defeat in local elections amid concerns over austerity

Associated Press

LISBON, Portugal (AP) -- Portuguese voters looked set to hand the coalition government a heavy defeat in municipal elections Sunday, apparently reflecting widespread public opposition to austerity measures and labor reforms being enacted as part of the country's 78 billion euros ($105 billion) bailout.

With just over 60 percent of votes counted, the center-right Social Democratic Party, the coalition's senior partner, had 22 percent of the national tally of votes compared with 38 percent for the center-left Socialist Party, the main opposition in Parliament. The Socialists are demanding less austerity and more investment in economic growth.

Complete results from the votes were expected Monday. Some 9.5 million voters were electing representatives on 308 municipal councils and more than 3,000 parish councils.

Though votes in the local races have no direct bearing on the makeup of the national government, the ballot was seen as reflecting the public mood amid a jobless rate of 16.5 percent. A third straight year of recession is expected in 2013, after a 3.2 percent contraction last year that was the country's worst economic performance in almost 40 years.

The government's defeat could add to its difficulties enacting the 2011 bailout agreement, which demands pay and pension cuts, tax hikes and reductions in public services. That may help prolong efforts by the 17 countries that share the euro currency to end their three-year-old debt crisis.

However, Antonio Barroso, a London-based analyst with Teneo Intelligence political and business risk firm, said he didn't expect the election to "crucially affect" the government's room for maneuver.

"It could have been much worse" for the Social Democrats, he said, and "the Socialist Party could have done much better" given the widespread hardship.

The Social Democrats govern with the smaller Popular Party.

The absence of a broad political consensus on how to restore the country's fiscal health has hurt Portugal on international financial markets. In a sign that investors are jittery, creditors have recently driven higher the interest rate Portugal pays on its loans.

Fears also have grown that Portugal, which is supposed to resume borrowing money on the open market in the middle of next year after correcting its public finances, may need a second bailout.

Despite two years of austerity policies, the government has repeatedly missed deficit reduction targets. The three major international ratings agencies still classify Portugal's credit worthiness at junk status.

Prime Minister Pedro Passos Coelho made no immediate comment, but he has previously vowed to press ahead with the bailout program even if his party performed poorly Sunday.

Socialist spokesman Miguel Laranjeiro said his party "is the big winner on this election night, and the Social Democrats are the big loser."

The government has to lop another 3.6 billion euros ($4.9 billion) off the state budget next year, when the retirement age will increase to 66 from 65. That is likely to bring more strikes and street protests.

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