LISBON, Portugal—Portugal’s center-right coalition government earned another four-year term Sunday, winning a general election behind an improving economy that weathered the austerity measures contested across Europe, but falling short of a crucial outright majority in Parliament.
With 99 percent of districts reporting, the government had 37 percent compared with 32 percent for the main opposition center-left Socialist Party. Smaller, leftist parties made up the rest.
The victory was bittersweet, however, as the government failed to achieve a parliamentary majority. That means it will be outnumbered in the 230-seat chamber by left-of-center lawmakers who could block its policy proposals. A period of political instability could ensue, making investors once again nervous about the eurozone’s ability to sort out its economic problems.
Incumbent Prime Minister Pedro Passos Coelho said his government is determined to abide by the eurozone’s fiscal rules. He said he is willing to compromise with opposition parties to achieve the “essential goal” of reducing national debt.
“Times haven’t been easy, and the times ahead will be challenging,” he said.
Portugal needed a 78 billion-euro ($87 billion) bailout in 2011 amid the eurozone’s debt crisis. The government complied with a German-led austerity plan to restore the 19-nation bloc’s financial health, cutting pay, pensions and public services and increased taxes that brought large street protests and strikes.
The austerity policies helped propel Portugal into a three-year recession, and the Socialists were optimistic they would benefit from a backlash against the government.
Socialist leader Antonio Costa conceded defeat, but warned that the government must change its conduct now that it has lost its outright majority in Parliament. “The government has to understand that things are different now,” Costa said, adding that he would not seek to make the country ungovernable.
The economy is improving, allowing the government to argue that austerity is paying off. The economy grew 1.5 percent in the first half of this year compared with the same period in 2014. The unemployment rate has fallen from a record 17.7 percent in 2013 to 12.3 percent last July.
Portugal shunned the kind of radical alternatives that have emerged in Europe in recent years, such as Greece’s Syriza and Spain’s Podemos, which have challenged mainstream parties from the far left. The Portuguese have a traditional preference for moderate parties, and voters apparently feared knocking the long-awaited economic recovery off-track. A handful of grassroots anti-austerity parties barely registered in the ballot.
The Portuguese government’s showing will give heart to Mariano Rajoy’s conservative government in neighboring Spain, which faces an election Dec. 20. Rajoy’s government has imposed deep spending cuts, but growth has returned to the country.
Passos Coelho, Portugal’s 51-year-old prime minister, has nurtured an image as a cool-headed, resolute leader who is determined to restore his country’s fortunes through unpopular measures and painful reforms, whatever the political cost. He says Portugal can’t afford to go back to borrow-and-spend policies and must live within its means.
The government, made up of the Social Democratic Party and its junior partner, the Popular Party, united the right-of-center vote while the left-of-center vote was fragmented between the Socialists, the Left Bloc—with at least 10 percent, its best ever result—and the Communist Party, with 8 percent.
The election outcome “wasn’t so much a victory for the government as a defeat for the Socialists,” said Antonio Barroso, a London-based analyst with the Teneo Intelligence political risk consulting group.
The Socialist Party promised to start easing the tax burden and speed up growth through domestic consumption, but the Socialists had a credibility problem because they led Portugal to the brink of bankruptcy four years ago.