New Portugal PM forms government in delicate balancing act

Lisbon: Portugal's new Prime Minister Antonio Costa on Wednesday formed a new government that will have to pull off a tricky balancing act, satisfying both Brussels and his allies on the radical left.

Costa was named prime minister yesterday at the head of a new Socialist administration, ending more than seven weeks of political turmoil in Portugal after inconclusive elections.

Harvard graduate Mario Centeno has been named in the key post of finance minister in a government set to take power on Thursday.

Centeno will play a key role in juggling Portugal's financial commitments as it recovers from a massive 2011 bailout with the promises Costa made to hard-left parties in order to snatch power from the conservatives earlier this month.

Portugal's centre-right bloc won the most seats in elections on October 4, but lost its absolute majority.

In a dramatic parliamentary vote on November 11, the Socialists teamed up in an unprecedented alliance with the Communists, Greens and Left Bloc to topple the 11-day-old conservative minority government -- the shortest in Portugal's history.

Costa has repeatedly stressed that his government will respect Portugal's debt and budget commitments 18 months after it exited its USD 83 billion bailout programme, notably its pledge to achieve a deficit under three percent of GDP by 2016.

But he was forced to make risky concessions with the radical left that will impact on his budget.

Planned measures include raising the minimum wage, lifting a freeze on pensions and cancelling pay cuts for civil servants due next year.

Political scientist Antonio Costa Pinto said the "principal worry" for the premier was rigidity of the agreements he has made in order to come to power.

Costa himself, a 54-year-old former Lisbon mayor, has spoken out forcefully against the merits of austerity and called repeatedly on Brussels to relax its demands for painful cuts.

European Union president Donald Tusk congratulated Costa on his appointment, but warned that Portugal must ensure "sound public finances".

"I trust that over the next years and under your leadership, Portugal will benefit from the political stability and social cohesion that are necessary to respond to the challenges at hand," Tusk wrote to Costa.