The EconomistApril 14th 2018 Europe 49A
NTONIO COSTA, Portugal’s affable prime minister, greets
your columnist with a broad grin as he settles his hefty frame
into a sofa in his official residence. He has a lot to smile about. Lis-
bon, among Europe’s hottest tourist destinations, is enjoying a
mini startup boom. Portugal’s footballers are the European cham-
pions, and its politicians have nabbed a clutch of senior interna-
tional jobs. And above all, he is the winner of a high-stakes politi-
cal gamble.
When Mr Costa’s Socialist Party lost an election in 2015 to the
centre-right (and confusingly named) Social Democrats, who had
overseen a harsh EU-imposed austerity programme during a
three-year €78bn ($107bn) bail-out, most observers expected the
Socialists to prop them up in a left-right “grand coalition” of the
sort now common across Europe. Instead Mr Costa, the son of a
communist intellectual from Goa, Portugal’s old colony in India,
convinced two hard-left parties—the old-school Communists
and the modish Left Bloc—to support a minority Socialist govern-
ment in exchange for modest policy concessions.
Nothing like this had been tried before in Portugal. Mr Costa’s
new friends wanted, variously, to write off debt, leave the euro
zone, renationalise vast swathes of industry and quitNATO. The
fury was swift, deep and near-universal. Foes nicknamed Mr
Costa’s experiment the geringonça(“contraption”), and gave it six
months at most. Portugal’s president threatened to reject the pro-
posed government outright. Creditors feared a free-spending left-
ist government would send investors packing.
Yet over two years laterthe contraption is grinding along and
the sky has failed to fall in. Some wage and pension cuts have
been reversed, firms are creating jobs at a neat clip, foreign inves-
tors are eagerly sniffing around and the public finances are in
rude health; the government hopes to balance the books next
year. Portugal has become a bond-market darling while claiming
to stand in the vanguard ofthe battle against austerity. “We
showed that there is an alternative to ‘There is no alternative,’”
says Mr Costa. He enjoys approval ratings most leaders would kill
for. Little wonder Europe’s beleaguered social democrats are
beating down his door.
Does Portugal have anything to teach them? Mr Costa notes
modestly that “every country is specific.” Still, he has one or twoideas. Grand coalitions play into the hands of populists, he sug-
gests, because they signal to voters that political contests are re-
dundant. He cites Germany, the Netherlands and Austria as cau-
tionary tales; social democratic parties in all three are
floundering after governing with the right. An aide says that “civi-
lised conflict” helps keep politics, and parties, alive. That is a brac-
ing message in an era of cosy political pacts.
Pedro Magalhães, a political scientist at the University of Lis-
bon, points out that Portugal’s Socialistsdiffer from many of their
counterparts in Europe. The party sprang not from trade unions
but from elites desperate to establish a bulwark against commu-
nism after the end of military rule in the mid-1970s. The party
thus seeks power, not purity, and the election result gave a united
left the chance to block a right-wing minority government. No
one likes grand coalitions, but in many countries parliamentary
arithmetic leaves centrist parties no choice but to team up against
the extremes. Mr Costa’s gambit was bold, but also opportune.
The Left Bloc and the Communists hammer the Socialists on
matters like foreign policy but hold fire when it matters, notably
on the budget. Neither is fully comfortable with the deal, but both
know they would find the centre-right alternative less palatable,
and they can take credit for policies like raising the minimum
wage or halting transport privatisations. Helpfully, the growth in
Socialist support since 2015 has come largely at the expense of the
right, soothing the leftists’ fear that the contraption would turn
out to be their death warrant. Mr Costa says the arrangement will
survive until next year’s election. And beyond? “Why not?”Not a panacea
Even Mr Costa’s opponents concede that he is a canny operator.
But his success has been oiled by a healthy squirt of good luck.
The Socialists assumed office as Portugal’s recovery took off, aid-
ed by growth in the European markets that take 70% of its exports,
and built on the measures taken by the previous government.
The European Central Bank’s bond-buying had calmed markets.
Tourism has boomed, thanks to instability in other warm coun-
tries. Perhaps most importantly immigration, the issue tearing
apart so many European partiesof the left, doesnot animate Por-
tuguese voters. It is the departure of people that causes a bigger
headache: during the crisis 250,000 Portuguese, disproportion-
ately of working age, upped sticks in four years.
Portugal’s squeeze on spending had to be financed from some-
where. The axe has fallen on public investment, which was
slashed in 2016 to the lowest level in the EU. Mario Centeno, the
finance minister, says this was largely the result of a temporary
drop in EU subsidies, and chuckles at the sight of “so-called neo-
liberals” who now consider Keynes their “god”. He prefers to
draw attention to Portugal’s healthierbanks and buzzing univer-
sities, though he adds that investment is climbing again. Another
fear surrounds Portugal’s huge debt, which explains Mr Cen-
teno’s relentless focus on the deficit.
As this suggests, Portugal’s left-wing government is thriving
partly because it is not especially left-wing. For now it is fixated
on deficits and debt rather than investment and public services. A
centre-right government would be doing much the same. And so,
despite Mr Costa’s warm words, the contraption will surely
prove to be a temporary marriage of convenience; his party is al-
ready said quietly to be putting out feelers to the Social Demo-
crats. European leftists may find inspiration in Portugal. But they
will have to seek ideas elsewhere. 7The perky Portuguese
Social democracy is floundering everywhere in Europe. With one possible exceptionCharlemagne