Key Challenges

To begin, we must note three challenges common to many other European democracies that are not a problem in Portugal.
Immigration not
a divisive issue
First, regarding immigration and refugees, Portugal remains outside the routes taken by large populations of migrants and refugees leaving North Africa, the Middle East and South Asia. Immigration is not a salient or extremely divisive political issue in Portugal, unlike in many European countries. In a survey carried out in March 2018, only 2% of respondents in Portugal considered immigration to be among the two most important issues faced by the country, the lowest proportion in the European Union and well below the EU-28 average of 21%.
Islamist terror
not a problem
Second, Portugal does not have the same problem with Islamic terrorist radicalization (jihadists) that has been experienced by several other EU member states. Its (small) Islamic community is generally well integrated and participates in the country’s dynamic interfaith dialogue. Indeed, President Marcelo’s inauguration in March 2016 included an interfaith ceremony held at the Central Mosque of Lisbon.
Populist parties not
yet an electoral force
Third, unlike a number of other democracies, Portugal has not seen a rise in populist, anti-system parties or candidates, either on the right or the left of the political spectrum.
However, four challenges exist.
Budgetary risks
remain a concern
A first challenge will be to ensure that budgetary consolidation continues. The country had its most recent EU excessive deficit procedure closed in 2017. This was the third such procedure for the country since 2002. In the previous two, a new excessive deficit procedure was opened within two years of the preceding one closing. This risk is compounded by the high level of public debt, 124.8% of GDP in 2017. This is the third-highest ratio within the European Union. Barring relief, bringing this debt under control will require an unprecedented, sustained effort over many years and future governments. The government’s latest Stability Program for 2018 – 2022, released in April 2018, forecasts that debt will drop below 60% of GDP in 2032. This will require an unprecedented effort to sustain budgetary consolidation over more than a decade, and across international and domestic economic and political cycles.
Public expectations
must be managed
A second and related challenge over the short- to medium-term will involve the reconciliation of the need for budgetary consolidation with citizens’ expectations that the previous years’ austerity policies will be reversed. The Costa government managed to square this circle reasonably well during the current review period. However, more pressure, not less, is now emerging, especially as the economy recovers.
Governance capacity remains a weakness
The third challenge is the need to improve governance capacity. During the current and previous review periods, Portugal scored poorly in a number of areas related to governance capacity, including the use of evidence-based instruments in policymaking, the degree of strategic planning and input into policymaking, societal consultation, policy implementation, and the degree to which institutional governance arrangements are subjected to considered reform. Inevitably, weaknesses in these areas impinge on the quality of policymaking, both in terms of conception and implementation. This governance capacity pertains not only to decision-making arrangements, but also to broader oversight mechanisms.
Youth unemployment persistently high
The fourth serious challenge has to do with youth unemployment. Youth unemployment rates have not followed the declining trend of unemployment in general, remaining fairly stable during the current review period – above the EU and euro zone averages. Labor market policies will need to tackle this issue in the future in order to avoid wasting the significant educational investment that has been made over the past decade.
In addition, two factors are likely to exacerbate these four challenges.
Environment becoming less predictable
First, Portugal has been heavily shaped and clearly benefits from membership in the European Union. However, the external environment is becoming much less predictable and supportive of the recent progress made by Portugal. Particular concerns include the confusion over Brexit, the change of leadership in Germany, widespread demonstrations in France, Italian resistance to key EU policies, political polarization over migrants across most EU member states and possible trade wars stimulated by the U.S. Trump administration. Already there are signs of tension in Portugal, which have manifested in strikes in several key areas of society and the economy. It is likely that external factors will increasingly aggravate domestic challenges. It remains to be seen if Portugal’s political economy will be able to respond as positively to these external factors as in the two previous review periods.
Elections hold
for coalition
Second, there will be elections next year. On 26 May 2019, elections will be held for the European Parliament and, on 6 October 2019, elections will be held for the Assembly of the Republic. We must remember that Portugal is indeed a democracy, and the central actors are political parties. According to the most recent public opinion data (collected in November 2018), 41.8% of voters intend to vote for the PS. Since the last survey, the PS share has increased by 0.4 percentage points, the BE share has decreased 0.3 percentage points, and the CDU share has increased 0.1 percentage points. In comparison, the PSD share has decreased 0.7 percentage points, with 26.8% of surveyed voters intending to vote PSD. Consequently, although there is a “contraption” in which the PS receives parliamentary support from the BE and the CDU, one should not assume that the “contraption” will last into the next parliament. The PS may decide either to form a government on its own or demand more “flexibility” from the BE and CDU. Alternatively, the BE or CDU may determine that they don’t want to support the PS or, if they do, may demand that they join the PS in the government.
Eurobarometer 89 (Annex), March 2018. Available online at: http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/ResultDoc/download/DocumentKy/83136

Party Polarization

Stable party system
over time
The Portuguese party system has proved comparatively very stable over time. Since the October 1999 legislative elections, the party system has been almost entirely monopolized by five political forces: the PSD, PS, CDS, PCP and its ally PEV, and BE. Overall, Portugal has had six legislatures since the beginning of the new millennium. Out of a total of 1,380 members of parliament elected to these six legislatures, 1,379 have belonged to these five political forces.
Low level of ideological polarization
This stability contributes to a low level of party polarization, as evidenced by the lack of ideological polarization. Portugal has the seventh lowest level of ideological polarization between parties out of the countries assessed in 2018 and is well below the overall average for all countries.
Coalition has reduced overall polarization
Interestingly, party polarization has generally diminished in the current legislature. In November 2015, the PS entered into agreements (termed “joint positions”) with the PCP and BE, with the parties agreeing on a set of common policies and the support for the formation of a Socialist government. These agreements have meant that the PCP and BE have a greater role in government and policymaking than ever before, mitigating overall polarization in the party system.
Budget approved by formerly skeptical parties
The greater role of the PCP and BE in policymaking is evidenced by their approach to the recent State Budgets, the central policy plank of Portuguese governments. The 2016, 2017 and 2018 budgets were negotiated with the BE and PCP, and approved with their support. The 2019 budget is set to follow this pattern, having been approved following its first parliamentary reading – again with the support of the BE and PCP – at the end of October 2018.
This constitutes a profound modification vis-à-vis the past. Previously, the BE and PCP systematically voted against all budgets, with the BE voting against every single state budget since first entering parliament in 1999; and the PCP voting against every state budget since 1977.
Growing distance between centrist parties
At the same time, while overall polarization is diminishing, there is now a greater distance between the two centrist parties, the PS and PSD, as well as between the PS and CDS. These three parties had cooperated extensively since democratization, not only in terms of forming PS-PSD and PS-CDS coalition governments, but also in terms of approving the state budget.
Widening gap between left and right
Thus, the formation of a Socialist government in the aftermath of the 2015 legislative elections – and its rapprochement with the PCP and BE – widened the gap between the Socialists and the parties to its right, the PSD and CDS. Equally, the austerity of the previous PSD-CDS coalition government during the 2011 – 2014 bailout period also widened the gap between PS on the one hand, and PSD and CDS on the other (and, arguably, contributed to the Socialists’ parliamentary entente with the PCP and BE). (Score: 8)
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