Aday after President Cavaco Silva ceased stalling the inevitable by appointing Socialist leader António Costa as Prime Minister, the national treasury on Wednesday sold off ten-year bonds, with demand outstripping supply by almost double.
Ten-year bonds are often an indication of confidence in the long-term outlook of a nation’s economy, and while the yields were nominally higher than the last such auction a month ago, the rate of 2.42 percent was among the lowest in recent memory.
While the maximum target sale of one billion euros was not achieved, only 995 million euros worth of bonds were sold, it reveals that many speculators had initially shown an interest in the hope of cashing in on fears over Portugal’s leftist government, but seemingly moved swiftly to withdrawing their interest when yields remained low.
This was underlined in comments on Wednesday to Reuters by Orland Green, debt strategist at Credit Agricole.
While explaining that the market was “not too concerned” about the new leftist government”, he revealed that economists “are positive in the medium term about Portugal and happy to take on Portuguese debt.”
The Socialist government cannot argue, unlike their predecessors, that they have inherited an unsustainable financial situation.
However, images repeatedly projected by the previous government of burgeoning state coffers were made to look little more than a mirage this week.
In his final act before handing over the keys to his successor, Fiscal Affairs State Secretary Paulo Núncio admitted that projections had taken a turn for the worse. On the eve of his departure from office, he told a multi-party financial commission the centre-right’s pre-electoral announcement that taxpayers would be given part of the income obtained this year from an extraordinary tax surcharge would no longer be feasible.
Hinting at the unreliable nature of statistics and projections, Núncio said that income from taxes had failed to generate a surplus over expected revenue for 2015 from the surcharge and funds obtained from VAT.
After accusing the coalition of political gamesmanship, the Socialists will have little option but to accept that there is less cash available with which to implement some of their ambitious anti-austerity measures.
The country’s financial situation is synonymous with the stability of any government. It will be no different for the Socialists, who are the first to come into power in Portugal’s 40-year old democracy having failed to win an election. The man tasked with a large proportion of ensuring the Socialists longevity in power, will be the newly-appointed Finance Minister.
A liberal economist, Mário Centeno will be asked to perform an intriguing juggling act of not only boosting the cash-strapped linings of Portuguese taxpayers’ wallets and purses, but to also do the same with the nation’s still volatile accounts.
The first true indication of his ability will be put to the test next Tuesday when the Socialist’s programme for the next four years is unveiled in its entirety and debated in Parliament.
Since his appointment on Thursday afternoon, he would have been focussing on the 2016 state budget and justifications of how he intends to balance the books by extracting more money from a relatively stagnant economy, reliant on a similarly sluggish world economy.
He will also be left with the Novo Banco hot potato after the previous government failed to secure a buyer for the troubled bank, while working with his Transport and Economy Ministers on turning back the clock on the privatisation of national flag carrier TAP.
Labour and Welfare Minister José António Vieira da Silva, who served under former Prime Minister José Sócrates, is also expected to be a prominent feature of António Costa’s cabinet.
With much of the Socialist’s election manifesto centred around job creation and enhanced earning power, he will have to perform similar miracles as he did under Sócrates when he initiated the gradual increase of Portugal’s retirement age and cuts on early pensioners without too much opposition from unions.
Pedro Marques, Minister of Planning and Infrastructure will be under enormous scrutiny from the far left. Along with Economy Minister Manuel Caldeira Cabral, they will have the undertaking of fulfilling another pre-electoral promise - that of reducing or even disbanding tolls on previously unpaid motorways.
Any side-stepping on this issue could see the Left Bloc, who have been particularly vociferous in their opposition of tolls, and arguably have the election of their MP in the Algarve to thank for this, could see the leftist alliance endure turbulent times.
It has also become apparent that trade unions could have a significant role to play in the success or failure of the new Socialist government.
Industrial action would inescapably see the Socialist’s partners, the Communists and the Left Bloc, take action on behalf of workers – the cornerstone of their support. This could compel the government into upholding their post-electoral agreement to the letter, irrespective of the prevailing economic climate.
This could be further compounded by the far left seeking to enforce additional changes should Portugal’s financial panorama experience marked shifts away from the expected scenario during the Socialist government’s four-year mandate.
But the Socialists also look set for more presidential support than they have of late.
Having endured stern opposition from President Cavaco Silva since the 4 October elections, the Socialists will be looking forward to the 24 January presidential elections with anticipation that borders on glee, irrespective of the eventual victor.
While the front-runner, Marcelo Rebelo de Sousa will be supported by the centre-right in his bid to succeed Cavaco Silva, he has in the past week spoken out against the president’s modus operandi in dealing with the 50-day long political impasse, and has since last month repeatedly expressed his support of a lasting government and not one which can be successively unseated by early elections or motions of no-confidence.