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Coalition crisis brings Portugal back to center-stage in eurozone bailouts saga

Cavaco Silva

Until today, Portgual’s beleaguered government looked like it would avoid crisis — just barely.portugal flag

But the decision by Portugal’s president to seek a broad unity government to carry out the terms of Portugal’s bailout program has cast doubt again on whether the center-right government led by Pedro Passos Coelho will be able to serve through the end of its natural term of government in 2015 or at least long enough to see through the termination of the €78 billion bailout program in June 2014.

Despite a deal last week that saw Passos Coelho’s more conservative coalition partners agree to return to government, Portuguese president Aníbal Cavaco Silva, who served as prime minister of Portugal from 1985 to 1995, is now pushing for a broader coalition in light of risks that the government might falter again.  Cavaco Silva’s top priority is that Portugal has a reliably strong government to see through the bailout program next year and to avoid snap elections now in favor of early elections sometime next June.

But that appears to have backfired, and it remains unclear just what will happen next in Portugal’s governing crisis — Cavaco Silva’s ploy may have made early elections even likelier, which are certain to become a referendum on further austerity measures in accordance with Portugal’s bailout.  The political crisis comes at a time when Lisbon was set to host International Monetary Fund and European Union officials next Monday for a review of the bailout program and amid reports that Portugal will require a second bailout when the current one runs out next year.

Portugal’s most recent crisis began when finance minister Vítor Gaspar resigned on July 1 after rising complaints over the implementation of the bailout program.  Gaspar, a technocratic economist first appointed after the June 2011 elections that swept Passos Coelho and his center-right Partido Social Democrata (PSD, Social Democratic Party) into power.  He had become the poster child for austerity and widely reviled as Passos Coelho’s party has fallen up to 10 points behind the main center-left opposition, the Partido Socialista (PS, Socialist Party) in polls.

Passos Coelho immediately appointed treasury secretary Maria Luís de Albuquerque as Gaspar’s replacement, but the following day, his foreign minister Paulo Portas resigned.  Portas, also the leader of his more socially conservative coalition partner, the Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party), indicated that he would pull his party’s support from the coalition in opposition to the new finance minister’s appointment, arguing that it marked a continuity of policy with which Portas and his party now disagreed.

Nonetheless, a weekend deal between Passos Coelho and Portas appeared to have healed the rift — Portas would become deputy prime minister and take a larger role in steering the country’s finances, though de Albuquerque would remain as the new finance minister.  Though the deal required Cavaco Silva’s approval, it seemed likely to win it this week, given that Cavaco Silva (pictured above) had been crucial in bringing Passos Coelho and Portas back together.

Instead, Cavaco Silva’s call for a unity government to include the Socialist Party as well has renewed the Portuguese political crisis, given that the Socialists and their new leader, António José Segurocontinue to push for early elections rather than join a unity government.

Though Portuguese 10-year bond yields have fallen from a recent July 3 high of 7.47%, they edged up to a still-worrying 6.77% today after Cavaco Silva’s gambit.

While Cavaco Silva may have failed, his logic isn’t unreasonable.  Cavaco Silva’s goal was to steer Portugal between what he viewed as two poor alternatives — one in which he’ll have to trust  Portas and the conservative Christian Democrats to see through the bailout program, and another in which Portugal faces snap elections that could result in a hung parliament (or worse, if the two major leftist blocs outperform already robust expectations).

Continue reading Coalition crisis brings Portugal back to center-stage in eurozone bailouts saga

Bachelet enters Chilean presidential race as top contender

bachelet

Michelle Bachelet returned to Chile on Wednesday, wasting no time in declaring her much-awaited candidacy for president, with an air of inevitability that makes former U.S. secretary of state Hillary Clinton’s hold on the U.S. presidency in 2016 seem tenuous.chile

Bachelet (pictured above), who previously served as president from 2006 to 2010, and more recently as the United Nations Entity for Gender Equality and the Empowerment of Women, would be the first Chilean president in the post-Pinochet era to win a second term to the presidency.

Under the Chilean constitution, no president may run for reelection, though presidents can return for non-consecutive terms.

She is almost certainly a shoo-in to win the presidential nomination of the Concertación de Partidos por la Democracia (Concert of Parties for Democracy), usually known simply as the Concertación, the coalition of center-left parties that has dominated Chilean politics in the era following the military dictatorship of Augusto Pinochet.

Bachelet is also the favorite to win the general election on November 17 — although incumbent Sebastián Piñera will not be on the ballot, he’s had a turbulent time as president since his election in 2010.  Piñera’s greatest contribution to Chilean democracy may well have been his election — after running a moderate, respectful campaign, his election marked the return of conservatives to power for the first time since Pinochet left office, trumpeting the full normalization of Chilean politics.

But Piñera will leave office relatively unpopular — despite his government’s successful rescue of 33 trapped miners in October 2010, more recent troubles, such as rising poverty, income inequality and massive student protests in 2011 and 2012 in favor of the creation of new public universities, the end of for-profit education, and a new system to facilitate the financing of secondary education, have left his administration unloved and mocked for its numerous hiccups and misfortunes — so-called piñericosas.

The two likely candidates to challenge Bachelet will face off in a June primary among the parties of the Coalición por el Cambio (Coalition for Change), which formed in 2009 to boost Piñera’s campaign as a merger of two parties (and some other smaller parties):

  • The Unión Democrata Independiente (UDI, Independent Democratic Union), a party formed in the early 1980s among civilian supporters of Pinochet’s economic policies and military rule, and which moderated itself in the early 2000s.
  • Renovación Nacional (RN, National Renewal), which broke away from the UDI over the issue of the 1988 plebiscite on Pinochet’s continued rule — although RN ultimately largely supported Pinochet’s reelection, it originally favored an alternative candidate.  Piñera himself comes from the RN leadership, not from the UDI.

The UDI’s has indicated that its candidate will be independent Laurence Golborne, an engineer by training and the former CEO of Cencosud, a Chilean retailer.  He was, until recently, the Chilean minister of public works and before that, the former minister of mining and energy, where he became very popular in the wake of the government’s successful 2010 Copiapó mine rescue.  The RN candidate, Andrés Allamand, until recently, was Chile’s defense minister.

A CEP Chile poll in early January showed 49% favored Bachelet, while 11% supported Golborne and just 5% backed Allamand.  Another late January poll showed Bachelet leading 42% to 15% for Golborne and 5% for Allamand.

That lead will invariably narrow between now and November, however, when the center-right candidate emerges in June.  Despite the highest income inequality in the Organization for Economic Development (note that Chile is the only South American OECD country), Chile’s strong mining industry has powered growth rates of 6% since 2011, its GDP actually growing faster than before a temporary dip during the 2008-09 global financial crisis.

It’s quite incredible to think that the Concertación, which controlled the Chilean presidency from 1990 to 2010, held consecutive power three years longer than the military mostly under Pinochet (17 years).  The Concertación includes four parties: Continue reading Bachelet enters Chilean presidential race as top contender

Gaspar defends Portuguese economic program at Brookings

vitor

Portuguese finance minister Vítor Gaspar (pictured above) spoke to a small audience at the Brookings Institution Tuesday, notably less than 36 hours after Cyprus and the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund agreed on the terms for a Cypriot bailout — the fifth such eurozone bailout during the currency zone’s sovereign debt crisis.portugal flag

Of course, Portugal is one of those of other five countries, and Gaspar, for the past 21 months, has been responsible for implementing the terms of Portugal’s own bailout program.

Gaspar presented as optimistic a case as possible for Portugal’s current economic state on Tuesday. But he admitted that despite gains in lowering the country’s budget deficit, restoring Portuguese banks to greater health, and boosting the growth of Portuguese exports (the latter as much a sign of painful ‘internal devaluation’ of wages and incomes within Portugal as any sign of newfound productivity or competitiveness), Portugal’s GDP growth and employment rate remain problematic.  The Portuguese economy contracted by 1.6% in 2011 and 3.2% in 2012, and is expected to contract by a further 2.3% in 2013, while its unemployment rate, as of the last quarter of 2012, is 16.9%, its highest level yet.

As Gaspar noted, Portugal’s economy — second only to Italy’s — was already on the ropes when it entered the eurozone.  In particular, from 1990 to 2012, he claimed that the Portuguese economy marked a poorer performance than either Japan during its ‘lost decade’ or the United States during the Great Depression.  Regardless of whether that’s exactly right, there’s no denying that Portugal has faced long-term structural problems — since 2000, it’s notched GDP growth in excess of 2% just once (in 2007, when it grew by 2.37%, and that was at the height of the eurozone and global credit boom).

Gaspar placed much of the blame on Portugal’s failure to pursue macroeconomic stability in accordance with ‘best practices’ — i.e., Portugal simply failed to adjust properly upon accession to the eurozone 14 years ago.

Gaspar serves under prime minister Pedro Passos Coelho, whose liberal, center-right Partido Social Democrata (PSD, Social Democratic Party) came to power in the last election in coalition with the more socially conservative Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party).

Among his solutions are greater EU-level banking union as a means of reducing the risk premium associated with peripheral economies such as Portugal’s — Gaspar added that the higher borrowing costs that constitute financial headwinds, especially in the context of budgetary adjustment.

But it was surprising not to hear any mention of the emigration of up to 1 million Portuguese from the country over the past 14 years — and nearly 250,000 since 2011 alone.  Passos Coelho in late 2011 was criticized when he suggested that young, enterprising Portuguese citizens should emigrate to Portuguese-speaking countries, such as Brazil in South America, or to Angola in southeastern Africa, still in the throes of an oil boom.  Angolan visas issued to Portuguese nationals jumped from just 156 in the year 2006 to nearly 150,000 by mid-2012.

Mozambique, another former Portuguese colony, apparently issues 200 visas a day to Portuguese nationals.

Invariably, that escape valve has kept Portuguese unemployment lower than the rates over 25% recorded in Spain and Greece.

Edward Hugh at A Fistful of Euros has made a very compelling case that the emigration of younger, working age Portuguese, combined with a decreasing birth rate and greater longevity has resulted in relatively fewer workers contributing to pensions and health care for relatively greater numbers of retirees, placing extraordinary long-term fiscal pressure on Portugal, given the lackluster expectations for future growth: Continue reading Gaspar defends Portuguese economic program at Brookings