Portugal to Hold Snap Election in March After Probe Toppled Prime Minister

(Bloomberg) -- Portugal will face an early election on March 10 after Prime Minister Antonio Costa unexpectedly resigned on Tuesday amid a probe into possible government corruption.

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Lawmakers will be able to give final approval to the outgoing government’s 2024 budget before Costa is formally exonerated in early December, President Marcelo Rebelo de Sousa said on Thursday night in a televised address in Lisbon.

Costa, who had been premier since 2015, led a Socialist government backed by an absolute majority in parliament. The challenge for the party now will be to hold onto votes amid the corruption allegations, widespread anger over housing and previous pay controversy at state airline TAP SA. For the opposition parties, the focus will be on how to capitalize on those troubles.

In a poll late last month, the Socialists had almost 29% support. But PSD, the center-right party that’s the biggest opposition group in parliament, was just 3.7 percentage points behind. The far-right Chega party had 14.6%. Portugal last held early general elections in January 2022.

Read more: Portugal Kicked Into Limbo After Corruption Turmoil Toppled PM

The surprise ballot is part of the fallout from the turmoil that unfolded at breakneck pace on Tuesday. News broke in the morning that police raided government offices and detained Costa’s chief of staff. The prime minister’s resignation followed hours later, though Costa, 62, denies wrongdoing.

“I hope that time, sooner rather than later, will allow the clarification of what happened,” President Rebelo de Sousa said.

The corruption investigation is related to lithium exploration concessions in northern Portugal, hydrogen production and a data-center project developed by a company called Start Campus. According to Tuesday’s statement from the prosecutor, some suspects referred to interventions by Costa. It didn’t provide further details.

The Socialists still have no clear successor to Costa, though Finance Minister Fernando Medina and former infrastructure minister Pedro Nuno Santos have been seen as possible candidates. In Portugal, the prime minister and his government set policy. The president is mainly a figurehead, though he has the authority to appoint the premier and dissolve parliament.

A change in government may not necessarily lead to a major shift in budget policy, though a plan to privatize state-owned airline TAP may be disrupted by the early election. With the debt ratio above 100% of gross domestic product, fiscal discipline will likely remain central to any administration.

The 2024 budget includes income tax cuts and targets a surplus of 0.2% of gross domestic product, smaller than the surplus projected for 2023.

But interest rates have risen sharply in the last two years and the economy is cooling after a post-pandemic growth surge, which will weigh on government income and spending. The central bank sees growth of 2.1% this year and 1.5% in 2024, down from almost 7% in 2022.

(Updates with detail on timing of budget vote in second paragraph, quote from president in sixth.)

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