On Thursday evening, we took a close look at how the political landscape has changed in Portugal following inconclusive elections held earlier this month.

For those unaware, the worry in Brussels has always been that either Spain, Portugal or, in a less likely scenario, Italy, would go the way of Greece by electing politicians that would seek to roll back austerity, shun fiscal rectitude, and demand debt relief.

As we’ve noted on any number of occasions over the past nine months, that’s why Berlin adopted such a hardline approach to negotiations with Alexis Tsipras and Yanis Varoufakis. There was never any hope of setting Athens on a “sustainable path.” It was always about deterring more “meaningful” states from going the Syriza route.

Well as it turns out, the troika’s efforts to subvert the democratic process in Greece by using the purse string to overthrow the government apparently did not deter the Portuguese leftists. Put differently, the ATM lines, empty shelves, and gas station queues Greece witnessed over the summer have not had their intended psychological effect in Portugal as Socialist leader Antonio Costa announced earlier in the week that he’s prepared to align with the Communists and with Left Bloc to form a government in defiance of the Right-wing coalition. The Left alliance would have an absolute majority in parliament and would likely adopt an anti-austerity, and perhaps even an anti-euro, platform.

In an effort to head off this eventuality, President Anibal Cavaco Silva appointed Pedro Passos Coelho to serve another term as PM on Thursday. That was a slap in the face for Costa, and as we noted just moments after the announcement, Silva’s decision is likely to leave Portugal mired in an intractable political stalemate which is just about the last thing Europe needs as Brussels attempts to put the Greek debacle in the rearview while confronting the worsening refugee crisis.

Sure enough, Costa is now threatening to topple the government on the heels of what is widely viewed as an usurpation of democracy. Here’s Reuters:

Portugal's opposition Socialists pledged on Friday to topple the centre-right minority government with a no-confidence motion, saying the president had created "an unnecessary political crisis" by nominating Pedro Passos Coelho as prime minister. The move could wreck Passos Coelho's efforts to get his centre-right government's programme passed in parliament in 10 days' time, extending the political uncertainty hanging over the country since an inconclusive Oct. 4 election. This set up a confrontation with the main opposition Socialists, who have been trying to form their own coalition government with the hard left Communists and Left Bloc, who all want to end the centre-right's austerity policies. "The president has created an unnecessary political crisis" by naming Passos Coelho as prime minister," Socialist leader Antonio Costa said. The Socialists and two leftist parties quickly showed that they control the most votes when parliament reopened on Friday, electing a Socialist speaker of the house and rejecting the centre-right candidate. "This is the first institutional expression of the election results," Costa said. "In this election of speaker, parliament showed unequivocally the majority will of the Portuguese for a change in our democracy." Antonio Barroso, senior vice president of the Teneo Intelligence consultancy in London, said Costa was likely to threaten any Socialist lawmaker with expulsion if they vote for the centre-right government's programme. "Therefore, the government is likely to fall, which will put the ball back on the president's court," Barroso said in a note.

And here’s more from The Telegraph on the effort to undercut the democratic process:

Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest. Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika. He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets. Democracy must take second place to the higher imperative of euro rules and membership. “In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva. “This is the worst moment for a radical change to the foundations of our democracy. "After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said. Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels. This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia. The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm. “It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said. Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence.

Note what's happened here. The will of the people is now being characterized as a "false signal" to "financial institutions, investors, and markets."

In other words, what voters want means nothing. This is about what "markets" and "financial instiutions" want. What the electorate wants is nothing more than a "false signal."

This is precisely what we predicted would happen should the political situation in Portugal not unfold in a way that pleases Berlin and Brussels. Germany and, to a lesser extent, the IMF are now in complete control of the European political process. There's no "democracy" left. It's either get with the austerity program and stick with it, or face the consequences which, as we saw with Greece, could entail the closure of banks and the willful destruction of the economy.

We can however, take solace in the fact that Cavaco Silva's attempts to appease financial markets will invariably backfire, because if there's anything investors hate, it's uncertainty and the move to reappoint Passos Coelho will only serve to bring about a protracted political conflict with the Left. Watch Portuguese bond yields next week for hints as to whether the President's decision has achieved the stated goal of calming "investors" and "markets."

We'll close with the following quote from The Telegraph's Ambrose Evans-Pritchard: