Leader of the opposition Socialists, Antonio Costa told parliamentarians his Left-wing coalition was the only “credible and consistent” option for the country.
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The showdown comes less than two weeks after the government was sworn in.
Lawmakers from the Socialist, far left Communists and Left Bloc parties grouped together in Tuesday’s vote to oust the government with the aim of ending austerity.
Commentators have described how the leftist alliance as ideologically who is aligned to Greece’s anti-austerity Syriza party and Spain’s Podemos, stirred a public backlash against austerity measures adopted following Portugal’s €78bn (£58bn, $88bn) bailout in 2011.
After the collapse of the Passos Coelho government, Portugal’s president is expected to ask his Socialist opponent, Antonio Costa – who has vowed to “turn the page” on austerity – to form government. He’s promised to roll back a few of the austerity measures that Portugal’s European creditors demanded as a condition of its 2011 bailout.
The president could also leave a conservative caretaker government in power ahead of fresh elections, which could similarly result in the removal from power of Prime Minister Pedro Passos Coelho, who was set to meet with Cavaco Silva on Wednesday afternoon.
Portugal’s 10-year bonds were little changed on Tuesday, after the yield jumped to a four-month high on Monday amid concern that spending cuts tied to the country’s global bailout might be rolled back.
The Left Bloc has said it wants to restructure the country’s debt, while the Communists have said Portugal should prepare to exit the euro. That was up from 2.30 percent just two weeks ago, when the political uncertainty began.
The leftist alliance intends to reverse the cuts in pay, pensions and public services, as well as tax increases that have brought widespread hardship, street protests and strikes in recent years. Analysts at ETX Capital saw a link between Portugal’s difficulties and the euro’s weakness against the dollar Tuesday.
This thus complied with the requirement of a majority of votes cast against the government programme, or at least 116 MPs in the 230 strong chamber, and in accordance with constitutional article 195, the government now resigns but with ministers retaining their positions while a new government takes office.
The government’s plan was rejected by 123 votes to 107.
Pro- and anti-government supporters rallied outside parliament as the vote happened.
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Luis Marques Mendes, a former leader of the party, said he believes Mr Cavaco Silva would hand the reins to Mr Costa.
