Portugal president asks Socialists to form government, angers Communists

By Andrei Khalip and Axel Bugge LISBON (Reuters) - Portugal's president asked Socialist leader Antonio Costa on Monday to start work to form a government, but his call for the Socialists' far left partners to respect budget commitments to the EU prompted a swift rebuke from the Communists. President Anibal Cavaco Silva said in a statement he had asked Costa for clarification on how a minority Socialist government would pass budgets, especially next year's, and about commitments to try to keep the budget deficit within European Union rules. Cavaco Silva's move came amid deep political uncertainty following an inconclusive Oct. 4 election, which some analysts fear could undermine Portugal's economic recovery after the country exited a bailout in 2014. The austerity-minded centre-right won most votes, but lost their parliamentary majority. The Communists, whose support Costa needs to ensure a majority in parliament, reacted angrily to the president's statement, potentially threatening the formation of a Socialist government. Costa also needs the backing of the Left Bloc in parliament to secure a majority. The far left have so far not committed on paper to Socialist promises of sticking to EU budget goals. "There is no reason for the president to demand conditions and guarantees ... This is a new attempt by Cavaco Silva to subvert the constitution and will have a corresponding democratic response by workers and the people," Communist Party leader Jeronimo de Sousa said in a televised statement. The outgoing centre-right government had promised a budget deficit this year of below the EU's ceiling of 3 percent of national output, down from 7.2 percent in 2014, and targeted a gap of 1.8 percent next year. Costa is eyeing a deficit of 2.8 percent next year if he leads a left-leaning government. Sousa said the president was now "responsible for the political and institutional consequences for decisions that contribute to worsening the national situation and promoting confrontation between different sovereign organs". DOUBTS OVER STABILITY In his statement, the president said he had requested "a formal clarification of questions ... omitted from different and asymmetric documents signed by the Socialist party with the Left Bloc, the Communist Party, the Greens and (which) therefore raise doubts about the stability and duration of a minority Socialist government". Many analysts are calling the stalemate Portugal's most critical political moment since the Carnation Revolution of 1974, when young army officers overthrew the right-wing dictatorship and ushered in democracy. Costa has said his agreements with the far left are stable and that he is confident about the approval of a 2016 budget. Socialist lawmaker Carlos Cesar said Costa would reply to the president later on Monday. "The onus for the creation of a (government) solution is now in the hands of the leftist parties in parliament," said Filipe Garcia, head of the Informacao de Mercados Financeiros consultants in Porto. The stock market was slightly lower, while Portugal's 10-year bond yields were six basis points higher at 2.55 percent. The president's statement said clarification was "even more decisive", given that the Socialists would depend on political parties with which they have agreed common positions for parliamentary support. Cavaco Silva has not nominated Costa as premier, but soon after the Oct. 4 election he used similar wording to ask Social Democrat Pedro Passos Coelho to come up with a stable government solution, naming him prime minister 18 days later. His new government failed to secure enough parliamentary support to survive and fell on Nov. 10. It remains in office in a caretaker capacity. (Reporting By Andrei Khalip and Axel Bugge; Editing by Gareth Jones)