Portugal votes in early election overshadowed by bailout

LISBON, June 5, 2011 (AFP) - Portugal voted Sunday in an early election to decide who implements a 78 billion euro bailout deal, with the opposition favourites to win after six years of Socialist rule and near financial collapse.

Opinion polls give the centre-right Social Democrats (PSD), who last ruled between 2002 and 2005, around 36 percent of the vote against 31 percent for Prime Minister Jose Socrates' Socialists.

PSD leader Pedro Passos Coelho campaigned on a promise to "go beyond" the demanding bailout conditions set by the International Monetary Fund and the European Union in terms of privatisations and economic reforms.

"We expect a great result," the 46-year-old, who wore a blue suit jacket and stripped shirt with the top buttons undone, said as he arrived to vote at a primary school in the Lisbon suburb of Amadora.

"The next two to three years will be hard. I am sure that we will make the necessary changes and Portugal will achieve prosperity. We are confident that we will fulfill the agreement we achieved with the EU and the IMF," he added in English in response to a foreign reporter's question.

During the final week of the campaign, Passos Coelho warned that if Socrates is re-elected Portugal would find itself in the same "tragic" situation as Socialist-run Greece, which is seeking more money a year after it received a bailout.

The outgoing prime minister accuses Passos Coelho of seeking to use the bailout package as an excuse to implement "the most right-wing programme ever proposed in Portugal."

As of noon (1100 GMT) turnout stood at 20.01 percent, compared to 21.29 percent at the same time during the last general election held in 2009 which was marked by a record abstention rate of over 40 percent.

EU Commission chief Jose Manuel Barroso said Lisbon's economic crisis made the vote the "most important" since the April 1975 polls which consolidated the nation's return to democracy after four decades of dictatorship.

"It is normal for politicians to say that each election is decisive but this time it's true," said Barroso, a former Portuguese prime minister, as he arrived to vote at a Lisbon polling station.

Investors have kept Portugal's borrowing costs close to record levels even after the bailout agreement was reached in May on fears that the new government that emerges after the election may lack a strong enough mandate to get parliament to pass the austerity and reforms called for in the deal.

The bailout is conditional on measures that include tax hikes, a freeze on state pensions and salaries and a reduction in unemployment benefits as well as their duration.

Passos Coelho also wants to require people collecting jobless or welfare benefits to do community work to "facilitate" their return to the labour market.

He also wants to add more companies to the list of state firms to be privatised under the bailout deal, including the state water utility and the Lisbon metro, in line with his belief that the state must play a smaller role in society.

If the final poll results are confirmed the PSD will fall short of an absolute majority in the 230-seat parliament but they could govern in coalition with the third-place conservative CDS-PP party as in the past.

The early election was triggered by Socrates' resignation at the end of March after the parliamentary opposition, led by the PSD, rejected his minority government's fourth austerity package in just under a year.

Two weeks later Portugal became the third eurozone nation after Greece and Ireland last year to request an international bailout because of its inability to meet its refinancing obligations.

Socrates argues he did everything to avoid a bailout. He blames the PSD, which had backed previous fiscal tightening, for provoking a political crisis just to topple the government "out of a greed for power."

The new government will have to fight joblessness -- which stood at a record 12.6 percent in April, the fourth-highest level in the eurozone -- with the economy expected to contract by two percent this year and the next.

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