The centre can hold
Post-election Portugal is a lesson to never underestimate ambitious politicians’ ability to upset the apple cart. The leader of the opposition Socialists, Antonio Costa, has declared himself willing to team up with parties further to the left to take power. Such a move would save his political skin but is already causing investors’ disquiet.
Market participants who previously thought Pedro Passos Coelho’s centre-right coalition would form a minority government are instead selling Portuguese debt. Ten-year bond yields rose as much as eight basis points to a high of 2.50 percent on Oct. 21 because of concern that deficit reduction plans might be blown off course if the Socialists came to power, with the support of the Left Bloc and Communist Party.
That outcome would be a change from Portugal’s cosy custom of alternating between centre-right and centre-left governments. It would also be in keeping with a growing European precedent for the rising influence of parties previously considered at the fringe of politics.
Yet this may all matter less than it seems. Even radicals can be tamed by power. Greek Prime Minister Alexis Tsipras is implementing the sort of austerity measures he previously railed against in opposition and in government. Given creditors’ intransigence, his only other choice was stepping down.
Even outside of the straitjacket of euro membership, hardliners can soften. In Britain, being in the limelight in opposition has forced a calibration in the tone of Jeremy Corbyn, the leader of the Labour party, and John McDonnell, his finance spokesman, who both previously used to speak their minds freely from the backbenches.
Markets tend to react unfavourably to political disruptions. New political faces and parties can change the tenor of the political and economic debate. But the business of taking and staying in power can exert a centripetal force. It ought to console nervy investors.