Portuguese coalition government takes power

June 21, 2011 - 9:44 AM

LISBON, Portugal (AP) — Portugal's new coalition government took office Tuesday, charged with steering the debt-heavy country out of an acute financial crisis that forced it to take a euro78 billion ($112 billion) bailout and contributed to Europe's debt woes.

Pedro Passos Coelho was sworn in as prime minister in an administration made up of his center-right Social Democratic Party and the smaller, conservative Popular Party. An election earlier this month ousted the center-left Socialist Party, which governed during the past six years of economic decline.

Portugal is stuck in a recession that is predicted to last through next year, and unemployment stands at a record 12.4 percent after a decade of meager growth when the country ran up huge debts.

The new government must move quickly to enact a raft of austerity measures and economic reforms, promised in return for the financial rescue package from its European partners and the International Monetary Fund that spared it from bankruptcy.

"The challenges we face are enormous," Passos Coelho said in a speech. "We are living through hard times and more difficulties await us."

He said his priorities were restoring the country's fiscal health, ensuring fresh growth and more jobs, and helping the needy who are suffering from austerity measures.

Any sign Portugal is failing to honor its commitments would further complicate the continent's efforts to stanch its sovereign debt crisis amid mounting fears about Greece's prospects of avoiding default.

The previous government introduced tax hikes and pay and welfare cuts to reduce debt, but additional austerity measures are needed to meet debt targets established as part of the bailout program. On top of that, the government has to introduce reforms in key areas, such as the justice and education systems, which for years have resisted change.

Trade unions have vowed to fight any attempt to strip away long-standing entitlements such as job protection.

So far, Portugal has seen none of the violent protests witnessed in Greece. Also, parties that supported the bailout terms collected about 80 percent of the vote in the June 5 election.

Passos Coelho said his government "won't be knocked off course." President Anibal Cavaco Silva, largely a figurehead, said in his speech the cost of failure would be "catastrophic."

The government also has to start selling off state shares in companies to raise funds. Wholly-owned national airline TAP Air Portugal, a 20 percent stake in energy company EdP, and a 49 percent stake in electricity distributor REN are slated for privatization by the end of the year.

Passos Coelho, 47, has never held a government post. He has put together a slimmed-down government of 11 departments instead of the previous government's more usual 15.

Key members of his administration come from outside the political sphere in an apparent attempt to break the grip of lobbies.

Finance Minister Vitor Gaspar has worked as a researcher for the European Central Bank and the Bank of Portugal and as an adviser to the European Commission.

Economy Minister Alvaro Santos Pereira, 39, came from his job as assistant professor in international studies at Simon Fraser University in Vancouver.

Foreign Minister Paulo Portas was defense minister between 2002-2005 and supported the 2003 U.S.-led invasion of Iraq despite widespread protests in Portugal. He received a U.S. Department of Defense Medal for Distinguished Public Service from former Secretary of Defense Donald Rumsfeld in 2005.