Portuguese Prime Minister Pedro Passos Coelho (L) speaks with by Portuguese President Anibal Cavaco Silva (R) during their meeting at Belem Presidential palace in Lisbon on October 6, 2015
Lisbon (AFP) - Portugal's Socialist Party on Friday rejected plans for a new centre-right minority government which outgoing Prime Minister Pedro Passos Coelho has been asked to form, insisting they could assemble their own coalition.
Passos Coelho's ruling bloc took more than 38 percent of votes in the October 4 election despite overseeing four years of painful austerity in the bailed-out country, but lost its absolute majority in parliament.
The president tasked Passos Coelho with forming a government on Thursday but less than a day later the Socialists were working on the details of an alliance with other left-wing parties -- something which has not happened in 40 years of democracy in Portugal.
Neighbouring Spain and Germany have both voiced deep concern about the prospect of a left-wing coalition taking power in Portugal, which is recovering only slowly after emerging from a 78-billion-euro ($88-billion) international bailout last year.
The threat to Passos Coelho was thrown into sharp relief Friday as the Socialists, who came second in the vote, declared they would "not endorse the formation of a government" by the centre-right.
Socialist leader Antonio Costa insisted he can form a government with support from the Left Bloc party, Communists and Greens.
"It is incomprehensible to name a prime minister who the president knows in advance will not be able to hold majority support in parliament," Costa said.
His party insisted they would "be able to propose a coherent alternative government, stable and durable", which "guarantees integral respect for Portugal's international commitments, notably its European ones".
The Socialist Party, the Left Bloc -- allied with Greece's anti-austerity Syriza party -- the Communists and Greens won 122 of the parliament's 230 seats, compared with 107 for the right-wing coalition.
The leftists were hoping to show their unity by electing one of their number as speaker of the parliament, which was meeting Friday for the first time since the election.
- Crucial vote -
A crucial moment will come when parliament votes on the government's programme -- which Passos Coelho must present within 10 days of taking office.
Left-wing parties say they will present a motion rejecting any programme that keeps the essence of Portugal's austerity regime, in force since 2011.
If such a rejection motion is passed, the government will fall, throwing the ball back to conservative President Anibal Cavaco Silva. He could then nominate Costa as prime minister, though on Thursday he was highly critical of the idea of a government propped up by hard-left factions.
Political commentator Antonio Costa Pinto said Silva's tough talk had made a compromise with the left difficult.
"The president's speech was so violent that it is now highly unlikely he will agree to nominate a socialist government supported by even more left-wing parties," Pinto said.
The president could refuse to countenance a leftist coalition and keep Passos Coelho in post at the head of an administration charged with running day-to-day affairs but with restricted powers, particularly in budget matters.
Portugal's constitution does not allow another election within six months, so the impasse could stretch well into next year.
To avoid this, Silva has asked the more right-wing group of the Socialists to vote against the party line and support Passos Coelho in the national interest.
- Fragile economy -
Whoever eventually takes power faces a series of economic headaches. Portugal came out of its international bailout in May 2014 but debt stands at around 130 percent of gross domestic product and the recovery remains fragile.
On Wednesday EU officials warned Lisbon it could face consequences for failing to present its draft budget for 2016 on time.
Portugal is the first country to fail to meet the October 15 deadline for sending budgets to the European Commission since a set of new rules for harmonising cross-border economic governance was put in place in 2013.
Spanish Prime Minister Mariano Rajoy expressed concern over the possibility that a Socialist government backed by the hard-left could come to power, while German Chancellor Angela Merkel said such a coalition would be a "very negative" development.