Portugal's ruling centre-right party prepares new government

The new leader of the Portugal's ruling centre-right Social Democrats began work Saturday on forming a new government following the resignation of Prime Minister Jose Manuel Durao Barroso to take up his new job as president of the European Commission.

President Jorge Sampaio announced late Friday in a televised address to the nation that he would ask Lisbon mayor Pedro Santana Lopes, who succeeded Barroso as the leader of the party, to form a government.

The president had been hesitating between calling early elections or appointing a new government from the ruling party since EU leaders at the end of June appointed Barroso as the next head of the bloc's executive arm.

Barroso handed in his resignation on Monday but is heading a caretaker government until a new administration is sworn in.

The Social Democrats took power in 2002 and general elections were not expected until 2006.

Polls show a majority of Portuguese favour new elections but Sampaio, a Socialist, said stability would best be served by asking the ruling coalition to form a new government.

But the president warned he would use his constitutional powers to ensure the government formed by Santana Lopes, a populist who is further to the right of Durao Barroso, does not make any radical changes in policy.

"I reiterate that the continuation of key policies -- regarding Europe, foreign policy, defence, justice, as well as policies of fiscal constraint -- must be rigorously respected," he said.

The leader of the main opposition Socialist Party, Eduardo Ferro Rodrigues who had vocally called for early elections, immediately resigned in protest against the president's decision.

The Socialists, who gave the ruling Social Democrats a drubbing in last month's European Parliament elections and lead in polls of voting intent, had argued that a new government formed without a fresh ballot would lack legitimacy.

The governing party has been hurt by rising unemployment and anger over the sharp spending cuts it has put in place to ensure that Portugal's public deficit stays within limits imposed on EU nations which adopted the euro currency.

Speaking to reporters after the president announced his decision, Santana said a government formed by his party would work to resolve the problems of the Portuguese people, adding "We will follow the previous orientation to assure continuity."

Leading party officials will meet Sunday at their headquarters in Lisbon where they are expected to name Santana Lopes, a lawyer and former secretary of state for culture, to head their next government.

Santana Lopes, a former president of Lisbon-based football club Sporting, will spend the weekend mulling over candidates for cabinet posts and is expected to present his suggested government to Sampaio early next week, party officials told daily newspaper Diario de Noticias.

The new cabinet is expected to feature numerous new faces, including replacements for Finance Minister Manuela Ferreira Leite and Foreign Minister Teresa Gouveia who both opposed Santana Lopes' rise to leader of the party.

Santana Lopes, who has five children from three marriages, is seen as a hard-working visionary by his supporters, but detractors accuse him of being Portugal's answer to Italian Prime Minister Silvio Berlusconi because of his tendency to mix media, football and politics.

He has the backing of Barroso, who will take over from Italy's Romano Prodi as the president of the European Commission in November, provided he wins approval from the European Parliament at a hearing on July 22.