Portuguese president asks PM to form government to ensure stability

By Axel Bugge and Sergio Goncalves LISBON (Reuters) - Portugal's president asked Prime Minister Pedro Passos Coelho on Tuesday to form a government that can ensure political stability following an inconclusive national election which denied the center-right leader a parliamentary majority. But Passos Coelho faces a tough task as the main opposition, the center-left Socialists, could attempt to negotiate both with the prime minister and the anti-austerity hard left at the same time, local media reported. President Anibal Cavaco Silva urged political parties to show a spirit of compromise in the coalition negotiations that will now begin. "It is fundamental that a stable and lasting government is formed ... It is up to the political parties ... to show openness to compromise, with a sense of responsibility, to ensure a solution for a sustainable government," he said in a televised address to the nation. In the election, the two parties in the austerity-minded ruling coalition together received the most votes, but at the same time the far left - the Left Bloc and the traditional Communists - made strong gains. Together, the Left Bloc, Communists and Socialists have a majority in parliament. Lusa reported late Tuesday that at a meeting of the Socialists' national policy committee, party leader Antonio Costa would be given a mandate to talk to both the far left and the ruling coalition about forming a government. The Socialists have previously consistently ruled out talking to the hard left. Lusa said the Socialists wanted to talk to the far left parties on their positions on the euro and debts. Both the Communists and Left Bloc back a renegotiation of Portugal's debt load, but the Left Bloc has dropped its opposition to the euro currency. While the Socialists want to ease austerity, they back budget goals agreed with Europe. Passos Coelho's center-right coalition won 104 seats in the 230-seat parliament, well short of a majority, meaning he needs to seek support from other parties to pass laws. The Socialists won 85 seats, the Left Bloc 19 and the Communists 17 seats. The most urgent task for the prime minister, who is now in a caretaker capacity, is to attempt to secure the support of the Socialists for the guidelines of a 2016 budget. That is the most pressing legislative task as it needs to be presented by mid-October. Analysts say the election could pave the way for greater political instability in Portugal, which endured deeply unpopular spending cuts and tax hikes during its debt crisis. The outgoing government pledged to reduce the budget deficit this year to 2.7 percent of national output. The Socialists, while promising to ease up on austerity, have also promised to meet EU budget goals. (Additional reporting by Sergio Goncalves; Editing by Gareth Jones and Ken Wills)