Portugal May Be Headed for Election With Costa Budget Gambit

(Bloomberg) -- Portugal's premier threatened to resign over a plan to boost spending, raising the possibility of early elections in a country that fought hard to regain investor confidence after Europe's debt crisis.

Prime Minister Antonio Costa said late Friday his Socialist minority government would quit if lawmakers approve a proposed pay raise for teachers. With European leaders under pressure from populists of all stripes ahead of an EU-wide election on May 26, Costa sought to signal that Portugal can't afford to loosen fiscal discipline less than a decade after seeking a bailout.

“I'm not engaging in blackmail or presenting an ultimatum,” the premier said in a speech in Lisbon. The teacher's pay boost is “financially unsustainable” and would “compromise Portugal's international credibility'' if parliament approved it, he said.

If Costa makes good on his threat and President Marcelo Rebelo de Sousa gives his backing, Portugal could be headed toward moving up a general election scheduled for Oct. 6. The premier has so far been a symbol of stability: only one minority government in Portugal has served a full term since a four-decade dictatorship gave way to democracy in 1974.

The government “has the expectation” that the president would schedule an election for July, newspaper Publico reported on Saturday. The ruling Socialists had 37 percent support in a poll published by Jornal de Noticias on April 28, leading the center-right PSD party by 12 percentage points.

Read more: Europe's Center Left Is Alive and Kicking, at Least in Portugal

Since taking office in November 2015, Costa has overseen economic growth and won backing from leftist parties for budgets that helped him lower Portugal's jobless rate and narrow the deficit.

Portugal's 10-year bond yield was little changed at 1.12 percent on Friday. It peaked at 18 percent in 2012 at the height of the debt crisis.

‘Electoral Maneuver'

Costa said the proposal to increase retroactive compensation for teachers would add at least 340 million euros ($381 million) of spending through 2020. A parliamentary committee approved the plan on Thursday with Costa's Socialists dissenting, and a final vote may take place on May 15, according to Publico.

Finance Minister Mario Centeno has set a budget deficit target of 0.2 percent for 2019, which would be the narrowest shortfall since Portugal returned to democracy. Even after completing its bailout program, Portugal's debt remains the third-highest in the euro area behind Greece and Italy.

Assuncao Cristas, head of the conservative CDS party, called Costa's speech “a purely electoral maneuver.”

“He's provoking a crisis that has no reason to exist,” Cristas said. “It's a lie that additional spending in this budget is at stake.”

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Tony Czuczka

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