Portugal caught up in post-election turmoil

The Socialists want to slow down budget cuts and ease austerity after Portugal emerged from a €78 billion international financial bailout just a year ago.

Amid the political uncertainty that could be a potential setback to the country's recovery, Portuguese bond yields rose on Monday (26 October).

Ten-year Portuguese yields were up 8 basis points at 2.46 percent, Reuters reported.

Passos Coelho's centre-right government carried out unpopular austerity measures and tax increases during a bailout to combat a debt crisis that sent Portugal into a three-year recession.

The measures drove down the deficit to around 3 percent of the GDP estimated for this year, from close to 10 percent.

Hangover

After the elections on 4 October, Coelho, 51, was reappointed by president Aníbal Cavaco Silva last Thursday despite lacking a majority in parliament, which swung to the Left.

The leftist block with the greens now has 122 seats out of 230.

Coelho, whose coalition was the winner in the elections, has 10 days to form a government, but the Socialists vowed to topple the cabinet in a confidence vote.

If Coelho loses, he will need to give back his mandate to the president, yet the Portuguese constitution does not allow for new elections within 6 months of a vote, until April 2016.

Cavaco Silva might be forced to give a chance to the leftist alliance, even though he made it clear that he thinks it is dangerous.

"After undertaking a demanding bailout, which required sacrifices from the Portuguese, it is my duty to do everything I can to make sure that wrong signals aren't sent to financial institutions, investors and markets, which would put into question the confidence and credibility the country has been recovering with great effort," Cavaco Silva said in a televised speech.

"Never in 40 years of democracy have the governments in Portugal relied on the support of anti-European political forces," he added.

But the leftists beg to differ.

"From our point of view, there is another government solution that blocks the [centre-right] Social Democrats and CDS from forming a government," Communist leader Jeronimo de Sousa told reporters after meeting Cavaco Silva.

The possibility to include the communists in Socialist leader Antonio Costa's coalition came as a surprise as the moderate Socialists have no tradition of working with the far left.

The centre-right European People's Party EP group leader, Manfred Weber, called the Portuguese Socialists' intention to work with the "radicals and communists", "unacceptable".

In talks with the Socialists, both the Left Bloc and the Communists agreed to the EU budget rules.

As a first sign in showing their true political clout, the Socialists used their majority in parliament on Friday to elect a Socialist speaker of the house, and block the incoming centre-right government's candidate.

Socialist Eduardo Ferro Rodrigues was elected with 120 votes in the 230-seat house, defeating the centre-right Social Democrat candidate who received 108 votes.