As part of our continuing series of election reports, we are pleased to welcome back Pedro Magalhães of the Social Sciences Institute of the University of Lisbon, Portugal, with a post-election report on the June 2011 Portuguese Parliamentary Elections. His pre-election report is available here.
The first “post-bailout” general election in Europe took place little more than two years ago, in Iceland, five months after the IMF-led package was agreed upon. The Independence Party, which had been in power for almost two decades and had mostly dominated Icelandic politics since World War II, obtained a mere 24% of the vote, the lowest score in the history of the Republic, dropping 13 points in comparison with the previous election in 2007. The second “post-bailout” election took place in Ireland, in February 2011, three months after the EU/IMF bailout package was agreed upon and in a context of recession and the highest unemployment rate since the early 1990s. The election result brought about the most profound transformation ever in the Irish party system. Fianna Fáil, the dominant party in Ireland since independence, became the third party, dropping 24 points in relation to the previous election and losing more than two-thirds of the seats it previously held in parliament.
Last Sunday, the third “post-bailout” general election in Europe was held in Portugal. On April 6th, the Portuguese government, a Socialist minority cabinet, following the parliamentary rejection of austerity measures and the resignation of the Prime Minister, was forced to seek a bailout from the EU and the IMF. The agreement, involving a $110 billion loan, was signed in early May, just a month before the scheduled elections. If we add to the humiliation of impending bankruptcy the record levels of unemployment and public debt, negative economic growth, and rising inflation, all this spelt disaster for the Socialists and their leader, José Sócrates, prime minister since 2005.
Indeed, a major defeat it was: an 8.5 points loss vis-à-vis the 2009 election (the second largest negative swing ever experienced by the party) and the Socialists’ worst score since 1987 (when the PSD had obtained its first absolute majority under the leadership of the current President of the Republic, Cavaco Silva). Sócrates resigned from the party’s leadership on election night and announced his withdrawal from active politics. The center-right PSD, led by Pedro Passos Coelho, obtained 40.3% of the valid vote, 11 points ahead of the incumbent Socialists (PS). This result, however, was short of the result the party had obtained just in 2002, when led by Durão Barroso. In fact, for a while, the PSD’s advantage in the polls during the campaign even seemed to be dwindling. Only by the end of the penultimate week before the election did its advantage over the PS begun to grow again one poll after another, as the large number of undecided voters (up to one fourth of the electorate two weeks before the election, according to some polls) rapidly began to decrease, breaking, apparently, for the main challenger. The party furthest to the right in Portugal, the CDS-PP, obtained its best score since 1983 – 12.2% of the valid vote – albeit short of the very high expectations that it entertained during the campaign. The Communists of the CDU basically kept their previous score. And among the smaller parties represented in parliament, only the left-libertarian Leftist Bloc (BE) experienced a major downturn, from 10% to 5% of the valid vote in comparison with 2009.
The possible reasons why the Socialists’ defeat, impressive as it was, remained short of the full-blown catastrophe experienced by incumbents in Iceland and Ireland were discussed previously here, and include the difficulty on the part of voters to clearly assign responsibility for economic and political outcomes, the problems experienced by the PSD in setting up an effective campaign, and the party’s ideological placement in a position too much to the right to be able to attract the centrist vote which the Socialists had controlled for more than a decade and a half. It remains difficult to further examine the factors driving this electoral outcome, since exit polls in Portugal notoriously neglect to provide any further data besides estimates for the vote for the main parties. How voters split in terms of age, gender, education, social class or issues is unknown, or at least will be until post-election surveys are finalized. However, a few pointers about the “mechanics” of the change can be inferred from the very last pre-election polls. First, there was no evidence in those polls of major vote transfers occurring from the PS to the PSD. What clearly seems to have been in place was a very strong “enthusiasm gap” between the PSD and PS electorates, as the latter declared to be “certain to vote” at a consistently lower rate and seemed clearly demobilized. Second, the PSD seems to have made considerable inroads among the urban and more educated voters, a perception reinforced by its victories in the electoral districts of Lisbon and Oporto for the first time since 1991. The increased dependency of the PS from lower-income and lower-education voters – both groups less likely to vote according to previous studies of turnout in Portugal – in the pre-election surveys may also account for the apparent levels of differential turnout.
Turnout was indeed an important aspect of the election. Besides PS’s defeat and PSD’s victory, the other major result that deserved attention in the election night was a new decrease in the level of electoral turnout in Portugal. With less than 60% turnout in the last two legislative elections, Portugal is now closer from this point of view to most Eastern European democracies than to, say, Spain. While both Iberian countries share a PR closed-list electoral system, Spain has consistently presented turnout rates above 70%. However, it is also clear that the Portuguese official turnout figures are clearly deflated by the apparent inability of authorities to keep the electoral register updated, not fully taking into account deceased voters and emigrants who remain registered in the Portuguese territory. By the end of the year, the results of the 2011 Census might help discerning the real magnitude of this underestimation of real turnout rates.
The electoral system, one of the least proportional among the PR systems in Europe – given the large number of small districts and the use of the d’Hondt method – gave its usual premium to the largest parties, resulting in the PSD having close to 47% of all MP’s and in more than 32% of MPs going to the PS (4 of the 230 seats still need to be attributed at the time of this writing).
Overall, then, the important defeat experienced by the incumbent Socialists does not signal, at least on the surface, a dramatic change in the Portuguese party system. The PS remains comfortably the second major party and the dominant force in the left side of the spectrum. Together, PSD and PS represent about 70% of the vote and 80% of MPs, similarly to what happened in 2009. Party system fragmentation remains the same. In the last two elections, 2009 and 2011, Laakso and Taagepera’s “effective number of parliamentary parties” in Portugal was about 3, certainly up from the late 1980s and 1990s but still relatively moderate.
The next steps leading to government formation involve the publication of official results, meetings between the President of the Republic and the parties represented in parliament, the appointment by the President of a Prime Minister to be in charge of forming the government, and the presentation of the latter’s program in parliament. All is needed for the government to enjoy parliamentary confidence is that parliament fails to reject the program. All that seems now a predetermined outcome. Short of an absolute majority, the PSD will have to seek support from its usual ally, the CDS-PP, in order to form a cabinet enjoying majority support in parliament. It is almost certain to be successful, as these parties are ideologically quite close and have successfully managed to form similar stable coalitions in the past (most recently between 2002 and 2005). There has been even talk of including the PS in some sort of agreement, now that Sócrates is gone. But the PS needs to elect its own new leader, making such arrangements unlikely. In the current circumstances, it also seems likely that both parties and the President will do their utmost to accelerate these timings as much as possible, leading to expectations that, by the end of June, the government will be in full powers.
The “current circumstances” are, of course, the measures included in the memorandum of agreement between the Portuguese government and the “troika” of the IMF, the European Commission and the European Central Bank, which was formally supported by the PSD, the PS and the CDS-PP even before the election. The full document can be found here. There are, very roughly speaking, two types of measures in this massive 68 pages document: those aiming at fiscal consolidation and those aimed at addressing state and market inefficiencies, i.e, structural reforms. Measures aimed at reducing the deficit from -9.1% in 2010 to -3% of GDP by 2013 include:
- following the 5% cut in public sector wages already implemented, freezing wages and pensions through 2013 (except in the lowest categories in the case of pensions) and adding a special contribution on pensions above $2,200 monthly;
- cuts of $285 million in education and $800 million in the national health service;
- suspension and review of all public-private partnerships for large public infrastructure works;
- imposing expenditure ceilings on state-owned enterprises, defense, and local governments;
- raising property taxes and VAT taxes on products currently subject to reduced rates;
- freezing and rolling back tax benefits and exemptions;
- full privatization of transport, energy, communication and insurance companies, aimed at obtaining $7.3 billion in proceeds;
- a reduction of the number of central and local government employees, including a reduction of 15% of management positions and administrative units (by the end of 2011 in the central government and by June 2012 for local governments);
- and a fiscal devaluation, reducing employer’s social security contributions in order to increase competitiveness and growth. Losses in revenue are to be offset by changing the structure and rates of VAT taxes and raising other taxes.
On the structural reform front, it is probably safe to say that the memorandum consists of the most far-reaching set of measures ever to have been proposed in Portugal. They include increasing transparency in public financial management, modernizing the tax administration, reducing the number of municipalities and parishes, reducing unemployment insurance benefits and severance payments and facilitating dismissals, increasing competition in the energy and telecommunications sectors, increasing the efficiency of the judiciary, and decreasing the banking sector’s dependence on the European Central Bank, strengthening solvency demands and increasing supervision, among many others.
A deep analysis of all these measures is besides the point here (several analyses in English can be found in The Portuguese Economy blog and a comprehensive review also in English is here). But there are several political points that can be made right now. The first concerns timing. Several of these measures need to be implemented very quickly, some of them by the end of July. This creates enormous pressure on the forthcoming government and its majority in parliament, and will require not only an impeccable transition from the incumbent administration to the incoming one but also important policy-analysis and implementation capabilities, something that is far from being the tradition in Portuguese politics.
Second, many of the measures contained in the memorandum are likely to produce strong contestation on the part of unions and other organized interests, such as those of medical doctors, pharmacists, lawyers, judges, teachers and others. Union density is low in Portugal. However, unions have been strongly aligned with parties, particularly the largest one (CGTP, with the Communist Party) and, to a lesser extent, the UGT (where the PS has been more influential than the PSD). Like in the rest of Southern Europe, low and declining union density has not necessarily lead to a decline of the mobilizing capacity of unions, given both the presence and influence of party members and an overall cultural environment that – at least in Portugal – tends to place value in protest and mass mobilization as normal and newsworthy component of politics. The fact that unions are very much tilted to the representation of workers with open-ended contracts, whose interests may be strongly affected by the memorandum measures, makes the potential for contestation even higher. Historically too, interests organized around regulated professions have managed to co-opt opposition parties to defend them in reaction to attempts at structural reforms, even when those reforms seemed initially popular among mass opinion, and there is little reason to expect a different strategy this time.
Third, even more profound is likely to be the opposition of local governments and populations to the proposed merging of municipalities and parishes. Today, Portuguese parties have developed into “stratarchies”, in which local party structures enjoy considerable autonomy vis-à-vis central ones (which enjoy a considerable autonomy in return when dealing with “national” issues, such as government formation). The price to pay, however, is that parties at the local level have great incentives to mobilize whenever their fundamental interests are harmed by centrally imposed measures. Furthermore, the ability of independent candidates to run for local elections has allowed incumbent mayors to credibly threat abandoning the party and winning elections anyway, something that several of them have already done with a considerable success rate. Finally, some measures seem, strictly speaking, nearly impossible to implement, such as the resolution of the huge backlog of more than 2 million pending cases in courts in just two and a half years.
More generally, the uncertainty about the likely success in implementing the memorandum can be gauged by a comparison with the last time the Portuguese government asked for an IMF loan and successfully put an adjustment program in practice, back in the early 1980s. There are aspects of the current conditions that seem perhaps more favorable than in 1983. Back then, close to one-third of the Portuguese population lived below the poverty line, against 17% today. The IMF adjustment program, involving cuts in public sector wages and in public investment, increases in direct and indirect taxes, and the liberalization of prices, was accompanied by large reduction in real wages and a rise in unemployment, which produced massive social costs that were only mitigated through the weight of the informal economy and family solidarity. Political polarization in the party system was much greater then and organized labor more powerful. This time, although the ripple effects in the overall economy will surely affect all segments of the population, the IMF’s program seems specifically calibrated to minimize effects over the lower income segments of the population. Furthermore, the IMF surely does not seem today the boogeyman it was in the past from the mass public’s point of view. In a recent poll, conducted before the terms of the memorandum were known, close to 60% of voters actually welcomed the EU/IMF package “as a way out of the current crisis”. This is actually reminiscent of the kind of patterns found on the basis of Eurobarometer surveys on whether the Portuguese prefer policy to be decided at the national or the EU level: Portugal is one of the European countries where support for the latter has been consistently higher, suggesting that, here and in other European countries, the perception of the failings of national governments had led citizens to place greater trust in outside forces than in their own domestic authorities.
Having said that, there are other differences in relation the 1983-85 context that suggest greater trouble. In 1983, the Prime Minister was Mário Soares, the founder of the Socialist Party, who had already held the PM’s office for three years, between 1976 and 1979. The grand coalition that implemented the program then was formed by the PS and the PSD, comprising the two largest parties in the left and the right, with 63% of the vote and 70% of MP’s in the 1983 elections. Today, things are slightly different. PSD’s leader, Pedro Passos Coelho, will be the first partisan Prime Minister who will have reached the office without anything remotely close to governmental experience. He will lead a coalition formed by two center-right parties, comprising 42% of the vote and 56% of MP’s. Furthermore, unlike what happened in 1983, the emphasis in the current memorandum is as much on fiscal consolidation as it is on structural reforms. In fact, the latter seem to be a condition for the former: without quickly reentering the path of economic growth, devoid of the control of monetary policy that Portugal still enjoyed in 1983 and relying on the more uncertain effects of fiscal devaluation, the interest rates imposed on the current loan seem almost impossible to meet. Not to mention the fact that, as the last two years have clearly shown, developments in financial markets seem to be largely out of political control, Portuguese, European or otherwise, and than even a successful implementation of the plan does not solve the problem of Portuguese banks’ exposure to Greek debt ($2.5 billion) and the likely disastrous contagion effects that would result from failure there.
In 1983, the “carrot” at the end of Portuguese adjustment was quite visible and apparently graspable: access to European integration where political elites still basked in the heat of “permissive consensus” and where Portugal could aspire to a path of development and growth, which it indeed end up enjoying in the late 1980s and 1990s. The years of “permissive consensus” are, however, quite over. Domestic public opinion permeates European policy-making as never before, Eurosceptic parties play major roles in the politics of many EU countries and hostility towards the “lazy South” is rampant. All that seems to be left as an aspiration that can be communicated to the Portuguese mass public is the rather uncertain promise of economic recovery and the continued membership in what seems, after all, a less than fully functional Eurozone. If the “carrot” is absent, however, the “stick” is quite visible: the risk that, if the implementation of the memorandum fails and the major public debt crisis remains contained to a few peripheral countries, Portugal will be almost surely be abandoned to its own fate by its Euro partners. We can only hope that Portuguese political elites, which have shown only mild evidence in the past of being able to cooperate politically in times of crisis, are able to keep that “stick” in mind.