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Portugal's center-right government returns to power, despite risk

The political environment in Portugal has introduced a note of uncertainty into the 19-country eurozone that could rattle investors.

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    Portugal's President Anibal Cavaco Silva addressed the nation on Thursday evening to name caretaker prime minister Pedro Passos Coelho to form a new government.
    Rafael Marchante/Reuters
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Portugal's president invited the center-right coalition government of the past four years to return to power Thursday after it won a general election, even though it will be outnumbered in parliament by anti-austerity opponents who vow to force it out within days.

The coalition won the Oct. 4 ballot with 38.4 percent of votes and will rule as a minority government. Pedro Passos Coelho, who has overseen deep cuts in pay, pensions, and public services and steep tax hikes, is expected to continue as prime minister.

But an unprecedented alliance of left-of-center parties, led by the moderate Socialists and including the Communist Party and radical Left Bloc, has 122 seats in the 230-seat parliament and says it will use that majority to quickly bring down the government and take power itself, with a promise to ease austerity measures that have hurt Portuguese pockets in recent years.

The political environment in Portugal has introduced a note of uncertainty into the 19-country eurozone that could rattle investors only recently settled after Greece's radical Syriza rang alarm bells. The issue is whether governments in the bloc are in a position to enact debt-reduction policies analysts say are needed to restore their financial health.

Debt-heavy Portugal needed a 78 billion-euro ($86.7 billion) bailout in 2011 amid the eurozone's financial crisis.

Its economy is improving but remains fragile, and the center-right coalition says more austerity will be needed. Portugal's budget deficit last year was the second-highest in the eurozone at 7.2 percent, and government debt remains high at almost 130 percent of gross domestic product – the third-highest in the European Union. Portugal recorded average growth of less than 1 percent in the first decade of the century.

The head of state, who is usually a symbolic figure, faced two alternatives: bring back the government despite its disadvantage in parliament, or opt for an alliance of center-left parties which have yet to provide details of their commitments to each other.

President Anibal Cavaco Silva said in a televised address to the nation that he could not give power to a government that opposed Portugal's membership of international institutions such as the European Union and the 19-nation eurozone. Both the Communist Party and the Left Bloc campaigned against the policies of those institutions, though the Socialist Party has said it would abide by eurozone financial rules.

"Out of the EU and the eurozone, Portugal's future would be catastrophic," Mr. Cavaco Silva said. He said Portugal risked losing what it had gained after four years of hard times.

"I have to tell the Portuguese that I fear a loss of confidence (in Portugal) by foreign institutions, our creditors, and investors in foreign markets. The confidence and the credibility of our country are essential for investment and job creation," Cavaco Silva said.

The Social Democratic Party and Popular Party coalition, which over the past four years has enacted unpopular cuts, have 10 days to form a government. After that, they need parliament's approval for their four-year policy program – which the center-left parties said they won't grant.

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