April 1, 2015 / 2:11 PM / in 4 years

Lisbon Socialist mayor steps down to campaign for Portugal PM

LISBON (Reuters) - The popular Socialist mayor of Lisbon stepped down on Wednesday to focus on his quest for the premiership in an autumn general election likely to be a vote of confidence on the center-right government’s austerity policies.

Antonio Costa speaks at the last session of his party congress in Lisbon, November 30, 2014. REUTERS/Hugo Correia

The election, due in September or October, is likely to be closely watched by investors who have so far been reassured by Portugal’s recovery from its debt crisis and the absence of an emerging far-left party like in Greece and neighboring Spain.

The opposition Socialists have criticized the government’s austerity policies and Lisbon Mayor Antonio Costa has said he wants to roll back a hugely unpopular hike in value added tax on restaurants and reinstate some benefits for civil servants.

But he has not yet outlined his full program. At a brief resignation ceremony, all he said was the it was now his “duty to concentrate ... on serving Portugal and the Portuguese.”

Prime Minister Pedro Passos Coelho, who is running for reelection, says Portugal needs to continue its tight budget policies to cut the country’s large debts.

Costa’s center-left Socialists lead in opinion polls against the center-right ruling coalition headed by the Social Democrats, but polls do not indicate it would win a parliamentary majority at the election.

“Although the Socialists are likely to win the elections, the outlook for government formation remains very uncertain,” said Antonio Roldan Mones, an analyst at Eurasia, in a research report where he gave a 60 percent chance of Costa winning.

“Despite the fact that Portugal has fared better than some of its southern counterparts, there is a strong desire for a change among voters after three years of deep austerity.”

Portugal exited, as scheduled, an EU/IMF bailout last year with the economy recovering after three years of recession, during which the government introduced harsh spending cuts and launched the biggest tax hikes in living memory.

While the Portuguese have been mesmerized by developments in Greece following the election of the far-left Syriza government, a hard-left party promising to shake off austerity has not won any mass support in Portugal.

Some analysts say the election campaign could still bring surprises, not least because former Socialist Prime Minister Jose Socrates was arrested late last year on suspicions of corruption. Costa served in Socrates’ first government as interior minister.

The latest poll gave the Socialists 38.1 percent support and the combined backing of the ruling Social Democrats and their CDS-PP coalition partner 33.3 percent.

Reporting By Axel Bugge; Editing by Tom Heneghan

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