LISBON • An alliance of left-wing Portuguese lawmakers has brought down the government of Prime Minister Pedro Passos Coelho, turning the country's politics on its head just weeks after inconclusive elections and offering up a strong new challenge to the austerity policies that have divided Europe.
Mr Passos Coelho, a centre-right leader, was ousted on Tuesday after lawmakers voted 123-107 to reject his new government's programme.
The prime minister had been held up as a model proponent of the belt-tightening prescriptions pushed by European Union (EU) officials, international creditors and countries like Germany.
Ahead of the vote, Portugal's finance minister had warned that a turnaround in economic policy could have dire consequences at a time when the country's debt continues to be rated as junk by three of the major credit rating agencies.
"If investor confidence is shattered, the threat of bankruptcy is real," Mr Maria Luis Albuquerque told lawmakers.
The warning went unheeded.
Portugal's conservative president, Mr Anibal Cavaco Silva, now faces the difficult choice of either asking Mr Passos Coelho to stay at the helm of a caretaker minority government until new elections can be held next year, or - more likely - allowing Mr Antonio Costa, the leader of the Socialist Party, to form an alternative government.
The socialists and their allies have promised to unwind parts of the austerity programme Mr Passos Coelho had introduced in his first term.
In either case, analysts expect Portugal to struggle to meet the deficit and debt targets set by Brussels after a €78 billion (S$119 billion) bailout programme in 2011. The European Commission, the EU's executive body, recently warned Portugal over delaying its 2016 budget plan.
BAD FOR ECONOMY
The probable consequences of this experiment are far from clear-cut, but they are likely to be mostly market-negative.
MR ANTONIO BARROSO, on a socialist government backed by radical left parties
Elected in 2011, Mr Passos Coelho was the first prime minister to lead a coalition through a full term in office since Portugal's 1974 revolution and return to democracy.
His second term was one of the shortest on record. His centre-right coalition won national elections on Oct 4, with just 39 per cent of the vote, after putting in place an austerity programme credited with arresting the country's economic slide, restoring some growth and access to financial markets and bringing down unemployment, which remains about 12 per cent.
But the majority of votes were spread among parties on Portugal's long-fractured left who tapped into the deep resentment of Brussels and the austerity policies.
A majority of Portuguese, judging by the election returns, did not experience the benefits of austerity, and they continue to struggle with low wages and widening income disparities.
After the election, socialist leader Mr Costa managed to broker a rare alliance of left-wing parties now united around their opposition to the austerity programme.
His administration would be the first socialist government supported by radical left parties since Portugal's return to democracy, said Mr Antonio Barroso, an analyst at Teneo Intelligence.
"The probable consequences of this experiment are far from clear-cut, but they are likely to be mostly market-negative," he said.
The left-wing parties have pledged to cut some taxes and reverse public-sector wage cuts. They also plan to suspend Portugal's privatisation programme.
But a left-wing alliance may itself face its own challenges.
Mr Pedro Magalhaes, a researcher at the Institute of Social Sciences in Lisbon, suggested before Tuesday's vote that a left-wing administration could struggle to last a full mandate given the long-standing divergences and different incentives of the three parties.
NEW YORK TIMES