Portugal's acting PM fails to gain Socialist backing for government

LISBON (Reuters) - Portugal's acting prime minister Pedro Passos Coelho failed on Friday to win the backing of the opposition Socialists for a new centre-right government, raising political uncertainty that could threaten a nascent economic recovery. Passos Coelho had invited Socialist leader Antonio Costa to the three-hour meeting after his coalition won the most votes in an election but failed to win a majority in parliament. Protracted political wrangling now could undermine the economy's revival after three years of recession induced by harsh cuts and tax hikes under an international bailout that Lisbon completed last year. With the Socialists declining to join his government, the most Passos Coelho can hope for from them is periodic support for key legislation like the 2016 budget. It is enough for the Socialists to abstain for that to happen. Another option, made possible by far-left election gains, would be a left-wing majority government led by the Socialists. Costa's party gave him a mandate to talk to both the left and the right after the election. But while the chance of a left-wing government rolling back the painful changes made under the bailout are slim, analysts have warned that a long-drawn-out stalemate in forming a government could also hold back economic growth. Both Passos Coelho and Costa said neither of them presented any proposals at their first meeting after the election, although they did agree to meet again on Tuesday. "This meeting (with Passos Coelho) was inconclusive because there was no proposal presented to us," a serious-looking Costa said. "This (meeting) did not meet the expectations we had." Passos Coelho said: "The Socialist Party didn't present any concrete proposal we could consider." Just an agreement by the Socialists to abstain from votes in parliament would be enough for Passos Coelho to get legislation passed and govern. "We are open to all solutions," as long as the country sticks to European Union budget rules and brings the budget deficit to below 3 percent of gross domestic product (GDP), Passos Coelho said. Costa wants to return more disposable income to families but has said that he respects European budget rules. ANTI-BAILOUT In a break with recent Portuguese elections, both the hard-left Communists and Left Bloc have said they would consider backing a government led by the more moderate Socialists in order to unite against the austerity of the centre-right. Combined, the Communists, Left Bloc and Socialists would have a majority and account for 52 percent of the vote compared with 38.3 for the outgoing centre-right coalition. The Socialists alone won 32.4 percent. Costa indicated he was keeping his options open, saying: "We need a change of politics and policies." He met the Communists on Wednesday and will meet leaders from the Left Bloc on Monday. "The meeting was very inconclusive, with the Communists it was easier," Costa said. The left wing of the Socialist Party has stepped up pressure on Costa to consider a government with the Communists and Left Bloc, saying voters who turned to the Socialists did so in order to reject the centre-right. Porfirio Silva, a close confidante of Costa and far left member of the Socialists' policy-setting national secretariat wrote in a blog that "no voter voted for the Socialist Party to let this government continue in power." The Socialists have no recent history of ruling with the Communists at national level, but have often done so in local government. Even so, they might jib at Communist and Left Bloc demands to renegotiate debt and roll back many free market changes introduced under the bailout. "There is no programmatic convergence of the Socialist Party and the two left-wing parties," said Antonio Barroso, senior vice president at the Teneo Intelligency consultancy in London. (Reporting By Axel Bugge, Sergio Goncalves and Patricia Rua; Editing by Ruth Pitchford)