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I have started writing a follow up to this article various times, but the situation remains very dynamic. The right would like to form a minority government with PS approving the budget for one or two years, while it digests internally this disappointing result. Pressed by various PS factions, António Costa decided to meet all the other parties. On Wednesday the bombshell exploded in his hands - the communists are willing to do whatever is necessary to keep the right away from government; this includes approving PS-led budgets and even taking part in government. This changes everything, PS can no longer blame the communists and their inflexibility for supporting the right.
The press now percolates a major division within PS: half the party wishes to form a left leaning government with BE and PCP, while the other half prefers to support a right-led government. There is no way to tell how this will end. And it seems PS itself as at stake.
Pressed by various PS factions, António Costa decided to meet all the other parties.
From my point of view that was an unnecessary snub of the opposition, and a faux-pas on the part of Cavaco. That happened before Costa decided to meet all the other party leaders on his own.
A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
If Passos Coelho fails to assemble a supporting majority in Parliament, the only way for the President to force a right-led government is through new elections. As explained in the main post, since Cavaco is now in his last 6 months in office this is something he can no longer do.
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