C O N F I D E N T I A L SECTION 01 OF 02 LISBON 000621

SIPDIS

E.O. 12958: DECL: 12/14/2019
TAGS: PGOV ECON EFIN SOCI PO
SUBJECT: PORTUGAL: GROWING TENSION IN PARLIAMENT TESTS
GOVERNABILITY

REF: LISBON 516

Classified By: Poleconoff Lucy Chang for reasons 1.4(b,d)

SUMMARY
--------------

1. (SBU) In September elections, Socialist PM Socrates lost
the absolute majority in Parliament he had enjoyed for four
years. The Socialists now have 97 seats in the 230-seat
Parliament, but have chosen to govern as a minority rather
than enter into a coalition with the opposition. Two months
into their four-year term, they are finding it tougher than
expected to pass legislation, as opposition parties on the
left and right are newly emboldened. In recent weeks of
heated debate, opposition parties have challenged the
parliamentary leadership of the Socialist Party (PS) by
passing a series of resolutions opposed by the Socialists.


2. (SBU) Following their November 27 passage of a resolution
to delay a key piece of legislation that would have increased
tax revenue, Prime Minister Socrates, who was counting on the
revenue to help close the budget deficit, accused the
opposition of "irresponsibility." The leadership of the main
opposition Social Democratic Party (PSD), in turn, blamed
Socrates for the fractious political climate and the economic
situation. The growing tension in Parliament portends
serious challenges for Socrates in the January debate on the
2010 budget and a potential political crisis that could, in a
worst-case scenario, lead to dissolution of Parliament. End
Summary.

OPPOSITION BLOC CHALLENGES RULING PARTY
--------------

3. (U) On November 27, for the first time in the newly
elected Parliament, opposition parties formed a bloc to
defeat the Socialists. Five opposition parties collaborated
against the ruling party to approve a proposal by the
right-wing Popular Party (CDS/PP) to delay for one year
(until 2011) the implementation of a new tax code that was
introduced by the Socialists earlier this year. The vote
constituted the first of several legislative upsets for
Socrates and his minority government. In the span of single

day, the Socialists were defeated on a total of 11 of 13
"anti-crisis" resolutions proposed by the opposition. Prime
Minister Socrates estimated that if all these measures were
implemented they would increase public spending by more than
2 billion euros in 2010.


4. (U) The tax bill, passed in July 2009 by the previous
Socialist-controlled Parliament, was to have gone into effect
on January 1, 2010. It would expand the social security tax
base; increase the social security tax paid by employers; and
impose a greater tax burden on self-employed workers.
According to the independent, non-partisan parliamentary
Budget Support Technical Unit, implementation of the
legislation would have increased government revenue by 80
million euros in 2010 and 170 million euros in 2015.


5. (U) On December 10, the opposition succeeded in passing
additional bills. Three of four PSD-sponsored
anti-corruption bills were approved, as all five opposition
parties joined forces to criminalize "illicit enrichment" in
the exercise of public functions. The CDS/PP agreed to
abstain on the vote, while the Social Democratic Party,
Communist Party (PCP), Left Bloc (BE), and Green Party (PEV)
supported the PSD resolution. The Socialists alone voted
against the bill on constitutional grounds, arguing that the
definition of "illicit enrichment" was unconstitutionally
vague and that, in any event, adequate laws were already on
the books to combat corruption.

SOCIALISTS REACT WITH CRITICISM OF OPPOSITION
--------------

6. (U) The Socialists reacted to the opposition revolt with
harsh criticism. Minister for Parliamentary Affairs Jorge
Lacao pointed to the lack of "conditions of governability"
and stressed that governability is a shared responsibility
among all parties, while Finance Minister Teixeira dos Santos
warned of the harmful consequences of approving such
measures. He cautioned that they would render it difficult
to reduce the budget deficit.


7. (U) Prime Minister Socrates accused the opposition of
"irresponsibility" and of "provoking ingovernability," and
underscored that it is the Government that takes the lead on
budget policy. PSD leader Manuela Ferreira Leite countered
by blaming Socrates for the political situation and accusing
him of "not wanting to negotiate." PSD Parliamentary Group
leader Jose Pedro Aguiar-Branco criticized the Socialist
parliamentary leadership for its failure to accept that it no

LISBON 00000621 002 OF 002


longer has an absolute majority.

COMMENT
--------------

8. (C) While these bills still must be reviewed in committee
and returned to the floor for final plenary vote, they
underscore the weakened position of the ruling party, which
now holds only 42 percent of the seats in Parliament. (The
main opposition party, PSD, holds 35 percent.) When the
Socialist Party lost its absolute majority in September
elections, it lost its ability to advance its agenda without
the support of other parties. The opposition appears to be
gaining ground, severely testing Socrates' governability less
than three months after he assumed office with a minority
government and swaggering confidence. It is likely that the
opposition mounted this assault on the Socrates government
not so much to control public spending and fight corruption
but because they sensed Socrates' vulnerability and seized
the opportunity to weaken him politically.


9. (C) The growing tension in Parliament portends serious
challenges for the Socialist Party in the January debate on
the 2010 budget (with the PSD leadership warning that it may
vote against it), and puts increasing pressure on Socrates to
compromise on core PS priorities. The Government and the
Socialist Party have been accused of dramatizing the
situation and playing victim, but ultimately it is the
Government's job to govern -- and this is a test of its
ability to do so. At stake is the viability of the Socialist
minority government. While the opposition-dominated
Parliament approved the Socialist government's 2009 budget
amendment last week (with the abstention of the center-right
PSD and the right-wing CDS/PP), the critical test of
governability will be the debate over the 2010 budget next
month. The opposition is emboldened, and surprisingly
well-coordinated considering their ideological differences.
In a worst-case scenario, continued opposition to Socialist
measures or a prolonged legislative stalemate could
conceivably weaken the Government enough to trigger new
elections. Under the constitution, however, the earliest the
president can dissolve Parliament and call for new elections
is April 2010. This gives Socrates four months to get his
legislative house in order.


For more reporting from Embassy Lisbon and information about Portugal,
please see our Intelink site:

http://www.intelink.sgov.gov/wiki/portal:port ugal
BALLARD