- Associated Press - Sunday, June 5, 2011

LISBON (AP) — Portuguese voters were choosing a new government Sunday, one that will be forced to impose grinding austerity measures as part of a 78 billion euro ($114 billion) bailout deal expected to pitch the country into a two-year recession.

Polls indicate the opposition Social Democratic Party will unseat the ruling Socialists, but whichever party wins will face the enormous task of trying to nurse the debt-wracked country back to financial health.

The winner in Portugal will inherit a record jobless rate of 12.6 percent and an expected economic contraction of 4 percent over the next two years in what is already one of Europe’s poorest countries. Necessary welfare and pay cuts, tax increases and promises of strikes from trade unions also will present tough challenges.

The center-right Social Democrats are seeking a strong mandate in the 230-seat parliament to enact unpopular fiscal measures and introduce longer-term economic reforms such as making it easier to hire and fire workers.

Social Democrat leader Pedro Passos Coelho, possibly the country’s next prime minister, potentially could invite the smaller, conservative Popular Party to form a coalition government if his party falls short of a majority in parliament.

Portugal is locked into debt-reduction targets established as part of the bailout deal, limiting its room for maneuver. But President Anibal Cavaco Silva said the new government will have “much to decide and do” and called for a high turnout among the country’s 9.6 million registered voters.

By 4 p.m. (11 a.m. EDT), four hours before polling stations closed, the turnout was 42 percent, authorities said. That was slightly lower than the turnout at the same hour in the last election in 2009.

Filipa Pinto, a 48-year-old homemaker voting in Lisbon, said the election campaign failed to address Portugal’s core problem — that the country hasn’t made its economy leaner and more competitive.

“The politicians don’t really want to change much. We’re only going to see a few changes because we’re being forced to make them from the outside,” she said.

Any sign that Portugal is not abiding by the terms of its bailout agreement with its eurozone partners and the International Monetary Fund likely will aggravate Europe’s debt crisis. There are already signs of bailout fatigue among the Continent’s wealthier nations, and Greece’s financial future remains uncertain, as its original bailout appears too small.

Keeping the political peace won’t be easy.

The election — the country’s second in two years — comes after months of political squabbles over how best to reduce the debt burden. Opposition parties refused to accept the Socialist government’s austerity plans, prompting the administration to resign and worsening Portugal’s financial plight.

All three main parties gave their blessing to the bailout deal, though they differ over how to meet the debt targets and the possible privatization of public services.

The Portuguese Communist Party and its like-minded rival, the Left Bloc, which are each expected to get less than 10 percent of the vote, have fought against bailout demands but potentially could support the Socialists in parliament.

Luisa Diogo, a 56-year-old high school teacher, said the country’s near future already is mapped out, and she felt “sad and powerless” while facing years of hardship.

“Europe is changing. All those postwar policies designed to give dignity to the old, the infirm and the unemployed are being taken away,” she said after voting in Lisbon.

The Bank of Portugal has predicted that economic hardship will be “particularly severe” in coming years, with an “unprecedented” drop in family income.

Portugal has lived beyond its means during the past decade despite average annual growth below 1 percent. It took advantage of cheap loans as a member of the 17-nation eurozone to build up debt, which financed its Western European lifestyle of welfare entitlements and job security.

Portugal needs to increase its exports amid feeble domestic demand. As a member of the eurozone, it can’t devalue its currency, but it can reduce pay and take other steps to cut costs.