Explainer-What’s at stake in Portugal’s general election

LISBON (Reuters) – Portugal’s election on Sunday is unlikely to produce a clear winner, opinion polls show, and the far right could play a decisive role in subsequent coalition talks just as the country prepares to celebrate 50 years since the fall of a fascist dictatorship.

WHY THE EARLY ELECTION?

The election, taking place two years ahead of schedule, was called when Socialist Prime Minister Antonio Costa resigned in November after being named in a public prosecutor’s office investigation into alleged graft in his government’s handling of multi-billion-euro investment projects.

Costa, whose chief of staff was briefly arrested, has denied wrongdoing and was never charged with any crime.

The case later appeared to largely fall apart as a judge accepted the charge of influence peddling, but not corruption, against those formally accused. Critics of the prosecutor general’s office said it had interfered politically without having a watertight case.

In the last election in January 2022, Costa’s Socialists won an absolute parliamentary majority with over 41% of the vote. The government’s implosion has brought their ratings in opinion polls below 30%, just behind their centre-right rivals, the Democratic Alliance (AD).

POSSIBLE SCENARIOS

The AD, which is led by the main opposition Social Democratic Party (PSD) and also comprises two smaller conservative parties, is ahead in most surveys, if within the margin of error from the Socialists, but well shy of support needed to win a working majority of at least 116 seats in the 230-seat parliament.

However polls have to be viewed with caution: before the 2022 election no pollster had predicted a Socialist majority. Now, all surveys appear to indicate that only the combined right including the far-right party Chega would win enough seats to have a stable government.

Polls point to 20% of respondents still undecided over their vote, leaving room for various possibilities.

* PSD leader Luis Montenegro has already said that if his alliance finishes first he would form a minority government, possibly with support from the business-friendly centre-right Liberal Initiative (IL) He has ruled out any agreements with Chega.

* If the AD and IL got 116 seats between them, that would provide for a stable government, be it as a formal coalition or based on IL parliamentary support.

* Otherwise, a centre-right administration will depend on Chega’s votes in parliament to approve legislation, with the first survival test to come by year’s end, when the 2025 budget will be voted on.

Chega leader Andre Ventura, whose party supports the death penalty, chemical castration for repeat rapists and wants zero tolerance for illegal immigration, has made his ambitions clear – he wants a role in the government in exchange for support, and has said Montenegro would be responsible for any instability if he refuses to negotiate.

* If the Socialists receive most votes but the combined right still secures a majority, the Socialists would have a first stab at forming a government. Montenegro has said he will not vie for the premiership in this case, but would not specify whether he would help enable a Socialist-led government.

Chega has already threatened to field a motion preventing such a government from taking over, but it would need the moderate right for the motion to pass. Again, such an administration would be prone to collapsing soon.

* As a more remote possibility, the combined left could win the majority.

Socialist leader Pedro Nuno Santos has said he would repeat a parliamentary alliance with the hard left tested in 2015-19, which he then personally coordinated.

While this could make for a stable government, the Socialists would be put under pressure to abandon fiscal prudence and spend heavily on social measures, likely unsettling investors.

WHAT IS PORTUGAL’S ECONOMIC SITUATION?

Under the Socialist leadership since late 2015, Portugal has grown at solid annual rates above 2%, except for the pandemic-induced slump of 2020. It has posted budget surpluses of late, using the cash to slash the public debt below 100% of GDP and winning praise from Brussels and investors.

But the government’s frugality has caused public discontent.

Investors do not expect much change to the path of fiscal prudence and growth from either a centre-right or centre-left election winner, but whoever manages to form a government will likely face some social strife and have to tackle rising housing prices and demands for higher wages by police, teachers and medical staff.

(Additional reporting by Sergio Goncalves; Editing by Frances Kerry)