José – Down But Not Yet Out

With the Japanese earthquake, Libya, and the Budget hogging the headlines, many will have missed the news yesterday from Portugal, where Prime Minister José Sócrates has been unable to get the latest instalment in his intended austerity plan through the country’s Parliament, and has therefore tendered his resignation to President Silva.

The reason for Sócrates’ failure to push through the latest in a series of measures intended to stave off the need for a “bail-out” – which would see Portugal follow Greece and Ireland – is that his party, the centre left PS, is a minority Government, with only 97 seats out of 230. Up until yesterday, the PS had received enough support from other parties to pass budgets and other legislation. Not any more.

So what has caused the fracture? Well, the minority PS Government had included a freeze on pensions in their latest austerity package. This has proved too much for some, and an alternative way of making up the shortfall has already been put forward: another rise in VAT. But, as top rate VAT in Portugal is already 23%, a rise of any significance would be to 25%, the highest in the EU.

Lisbon: put it on the map this year

Thus it seems the argument is not that spending cuts and tax rises have to happen, but is over who will take the hit. Indeed, the opposition PSD – the Social Democrats – are talking of a new Government to implement “A truly national strategy”, which sounds like, whoever prevails in the upcoming election, the austerity will go on.

So writing off Sócrates may be premature: it will come down to a choice between him and the PSD’s Pedro Passos Coelho. Should we in the UK be bothered? Well, yes we should, as there is a possibility that the contributions to a Portuguese bail-out may include one from the UK, although the amount is disputed.

In the meantime, we can all do our bit by putting Portugal on the holiday map for this year: I can recommend a city break in Lisbon, for starters.