Portugal gov't punished for austerity measures

LISBON, Portugal (AP) Portuguese voters angry about austerity punished the coalition government's senior party in municipal elections, deepening doubts over whether the debt-heavy eurozone country will be able to abide by the demands of its bailout and avoid asking for further financial help.

The center-right Social Democratic Party recorded its worst local election defeat in more than two decades in Sunday's ballot. Meanwhile, the main opposition Socialist Party which wants less austerity and more investment in economic growth claimed its biggest success in the nationwide elections for mayors and councilors.

With almost all votes counted Monday, the center-left Socialists had 36 percent of the national vote compared with just 16 percent for the Social Democrats in races where their candidates stood alone rather than in alliances, official results showed.

The government has struggled to meet the terms of the 78 billion-euro ($105 billion) bailout granted two years ago. It has twice missed deficit reduction targets, and the Constitutional Court has blocked some planned reforms in the public sector.

Portugal is supposed to resume borrowing money on the open market in the middle of next year after correcting its public finances, but the three major international ratings agencies still classify its creditworthiness at junk status and the interest rate on its 10-year government bonds viewed as a reflection of investor confidence are close to 7 percent, which is seen as unaffordable.

The elections coincided with a regular visit to Lisbon by inspectors from the so-called 'troika' of its bailout creditors the country's fellow euro members, the European Central Bank and the International Monetary Fund who reportedly are reluctant to ease austerity measures.

The political uncertainty in Portugal could help undermine efforts by the 17 countries that share the euro currency to draw a line under their three-year-old financial crisis.

The municipal elections do not directly affect the government, but austerity measures were at the heart of the main parties' election campaigns.

Social Democrat leader and Prime Minister Pedro Passos Coelho conceded his party suffered a heavy defeat but said late Sunday he can't halt his unpopular program of tax hikes, pay and pension cuts and reductions in public services because the bailout creditors would stop handing over the rescue funds.

An expected third straight year of recession in 2013 and a jobless rate of 16.5 percent have turned many people against the bailout terms, which initially had broad support, including from the Socialist Party.