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Explainer-What's next after Portugal's inconclusive election

Portugal holds general election

By Andrei Khalip

LISBON (Reuters) - Portuguese voters have given a razor-edge victory to the centre-right Democratic Alliance (AD) and a huge boost to the third-placed, far-right Chega, whose aspirations to a role in government could lead to a new election within months.

COMPOSITION OF NEXT PARLIAMENT

With four seats in the 230-seat legislature yet to be handed out based on votes abroad, the parties making up the AD secured 79 seats.

Chega quadrupled its parliamentary representation to 48 lawmakers, emerging as kingmaker. Business-friendly party Liberal Initiative was unchanged at eight seats.

The centre-left Socialist Party (PS) won 77 seats, down sharply from its absolute majority of 120 in the previous legislature, after the resignation of Socialist Prime Minister Antonio Costa amid a corruption investigation. Smaller left-leaning parties have another 14 seats between them.

WHAT COMES NEXT?

Conservative President Marcelo Rebelo de Sousa will consult the parties between March 12 and 20 and is expected to invite AD leader Luis Montenegro to form a minority government.

Portuguese electoral law allows two weeks for any complaints, recounts or vote recasts. Eight days later, the final election results are officially published.

Parliament is likely to return at the end of March or beginning of April and only then can the appointed premier start naming ministers, a process that has no strict deadline.

A minority government would have to negotiate with other parties to pass legislation on a case-by-case basis.

The 2025 budget is likely to prove its first survival test towards the end of this year. Failure to approve a budget usually means the government's collapse and a new election.

Portugal's constitution sets out that a new general election cannot happen earlier than six months after a new legislature first convenes, nor in the six months before a presidential election, which is due in January 2026.

THE COMBINED RIGHT WON, SO WHAT IS THE COMPLICATION?

Chega, led by charismatic former sports commentator Andre Ventura, 41, campaigned on an anti-establishment message, vowing to sweep away graft and voicing hostility to what it sees as "excessive" immigration. The party has frequently drawn criticism for perceived racist rhetoric.

It also supports the death penalty and chemical castration for repeat rapists, the kind of populist radicalism for which Portugal's political elite has ostracised Chega since its creation just five years ago.

Rebelo de Sousa has said he will do all he can to prevent Chega from getting into power.

In his victory speech, Montenegro reiterated a pledge not to strike any deals with Chega to govern, but he would seek "dialogue and understanding between parties and leaders". Some analysts interpreted this as a sign of some potential one-off compromises.

Ventura, who has called for an AD-Chega coalition, has said Montenegro would be responsible for any political instability if he refuses to negotiate.

Analysts believe piecemeal deals with Chega to pass legislation are possible, but the government would be shaky.

AD'S POLICY PROPOSALS

The newly-formed AD is led by the centre-right Social Democratic Party (PSD) - the Socialists' main traditional rival.

Montenegro, a 51-year-old lawyer and former lifeguard, has promised tax cuts for companies, the middle class and the young. But he has also said easing the record tax burden would go hand in hand with a policy of balanced public accounts that Portugal has stuck to after nearly defaulting on its debt in 2011.

The PSD was unseated in 2015 after presiding over a period of painful austerity dictated by the terms of an international bailout.

Investors do not expect much divergence from established fiscal prudence and economic growth from an AD government.

Portugal has posted budget surpluses of late, using the cash to slash the public debt below 100% of GDP and winning praise from Brussels and investors.

But with the Socialist government's frugality having caused public discontent, the next government will likely face social strife and have to tackle rising housing prices and demands for higher wages for police, teachers and medical staff.

(Additional reporting by Sergio Goncalves, editing by Aislinn Laing and Mark Heinrich)