Timing seen as crucial as snap election looms in Portugal

By Catarina Demony and Andrei Khalip

LISBON (Reuters) -Portuguese President Marcelo Rebelo de Sousa kicked off talks with the main political parties on Wednesday to decide whether, or how soon, to call a snap election following the abrupt resignation of the Socialist prime minister.

Antonio Costa stepped down on Tuesday after prosecutors detained his chief of staff and named his infrastructure minister as a formal suspect in an investigation into alleged illegalities in his government's handling of lucrative lithium and hydrogen projects.

Prosecutors said Costa was also the target of a related probe. He has denied wrongdoing.

It is up to the conservative president to decide whether to allow the Socialist Party (PS), which has a parliamentary majority, to form a new or interim government, or to disband parliament and call an election.

His decision is expected on Thursday after he meets his consultative body, the Council of State.

He had warned Costa previously that his exit for any reason would trigger a snap election, and analysts see that as the most likely option, although he could choose to give more time to the PS to get next year's budget over the line in parliament.

The budget includes lower income tax rates for the middle class, higher wages and social benefits.

"Whatever the president decides, it's important that he takes into account this concern with the conclusion of the budget," said Ines de Sousa Real, head of the People-Animals-Nature (PAN) party with one house seat, after meeting the president.

She and several other left-leaning politicians urged the prosecutor's office to detail their suspicions or accusations in the case with grave political consequences, adding: "We see with concern the judicial power toppling a government."

Political scientist Paula Espirito Santo said Costa's resignation in the absence of any concrete accusations came as a surprise to all parties, who will struggle to prepare for an election, especially the PS that is yet to pick a new leader.

"They (parties) were not expecting to have to run so soon," she said.

Most political leaders, with the exception of the PS, have said they want a snap election but analysts note it may be in their interest to have it later rather than sooner as, with Costa gone, there are practically no household names among them.

After meeting Rebelo de Sousa, Socialists' president Carlos Cesar told reporters his party would rather be allowed to form a government under a new premier.

By law, an election needs to be held within 60 days of the publishing of the presidential decree dissolving parliament, so one option for the president would be to promise an early ballot but keep the decree on ice.

Cesar said that if the president decides to call the election, March would be the best timing. He added that regardless of what happens the final vote of the budget bill, scheduled for Nov. 29, should not be put at risk.

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The main opposition Social Democratic Party (PSD) is seen as the likely beneficiary of a snap election, but there are doubts whether it could win a full majority or even build enough support to form a stable government.

The PSD is still reeling from defeat in a January 2022 election that caused a leadership change.

Its new leader, 50-year-old Luis Montenegro, who had been largely out of the spotlight since resigning as a lawmaker in 2018, has so far struggled to gain momentum in opinion polls.

Montenegro said that if an election is called, the calendar should take into account that the PS still has to pick a new leader. He also said it was important for the Socialists to "clarify the advantages" of approving the budget before a possible election.

"If it is ... more useful to have a budget, even if it is not our budget... the PSD will not create any obstacles," he said. "Our purpose is not confrontation - we need to unite the country."

Montenegro's most heavyweight likely rival would be Pedro Nuno Santos of the PS, who analysts say Costa had been grooming as his successor.

He successfully coordinated support for a previous minority government with the far left in 2015-2019, but his resignation as infrastructure minister in December 2022 in a scandal around a severance payout by state-owned airline TAP has undermined his popularity.

Andre Ventura, the populist leader of the far-right, anti-establishment Chega - the third-largest force in parliament - could become a kingmaker for the centre-right PSD if it fails to clinch a majority, but Montenegro has so far ruled out any such alliance.

Rebelo de Sousa, a 74-year-old former law lecturer and political commentator, has used his constitutional power to disband parliament once before, in November 2021. Unlike now, Costa's government then had no parliamentary majority and had just had its budget rejected.

(Additional reporting by Patricia Rua, Editing by Aislinn Laing, Nick Macfie and Andrea Ricci)