| LISBON, June 6
LISBON, June 6 Portugal's centre-right PSD party
was expected to work fast on Monday to form a majority coalition
government with its traditional allies, the rightist CDS-PP, to
implement the country's bailout programme.
PSD's convincing victory on Sunday -- with 39 percent of the
vote -- ended months of political uncertainty following the
collapse of the minority Socialist government in March when it
failed to pass its latest austerity package in parliament.
Submerged in an acute debt and political crisis, Portugal
received a 78-billion-euro bailout last month from the European
Union and IMF, whose terms include higher taxes, spending cuts
and privatizations that will weigh on the economy.
"No time to take a breath ... Today, the PSD and CDS-PP have
to start working on a coalition pact and a government that would
have enough quality and experience to implement and ambitious
but difficult programme," business daily Diario Economico said
in an editorial.
CDS-PP leader Paulo Portas said he was ready to rule
together with the Social Democrats.
Portuguese stocks opened higher on Monday [ID:nLDE75508M].
The 10-year bond yield rose slightly from Friday's close to
10.45 percent, but analysts expected investors to react
"The biggest risk of hung parliament is out of the way, so
we should have a rather safe government, a coalition government.
I'd say it is as good as it gets -- there should be positive
underlying impact from the election," said David Schnautz, debt
strategist at Commerzbank in London.
For election news and analysis, click on [ID:nLDE75409W]
SHOULD BE ABLE TO ACT FAST
A centre-right coalition government should be able quickly
to enact reforms and austerity measures included in the bailout,
such as sweeping tax rises and deep spending cuts, to reduce
Portugal's large deficit and debt.
"The next thing to see will be obviously how quick do we get
some unpopular decisions and how big is the backlash in the
society," Schnautz said.
Portugal faces its highest level of unemployment in three
decades and the economy is expected to contract two percent both
this year and next, presenting the new government with tough
challenges as disposable incomes fall.
The PSD has long defended lower government spending, which
the Socialists have managed to reduce only slightly, focussing
instead on higher revenues.
The PSD also advocates a smaller role of the state in the
economy and privatizations of state companies. Sell-off of state
properties is part of the bailout programme.
Filipe Garcia, head of Informacao de Mercados Financeiros
consultants in Porto, said the election results were convincing
and would help investor sentiment, but economic problems will be
there to stay for a long time.
"This major result will allow the right to pass more
unpopular measures," Garcia said.
"The PSD has committed itself to implementing the bailout
terms and that's what they'll do in the coming months ... But
the pact does not solve the country's problems, does not bring
growth and the success of the government's economic policy will
depend very much on the Europe-wide sovereign debt crisis."
Results showed the PSD won 105 seats while the rightist CDS
party obtained 24, allowing the two traditional government
allies a strong majority in the 230-seat parliament.
So far there have been few strikes or protests against
austerity measures in Portugal, unlike Greece and neighbouring
Spain, but analysts say that could change as the recession
(Additional reporting by Shrikesh Laxmidas; Editing by Sonya