* National Coalition party wins by narrow margin
* Populist True Finns surge to be third biggest party
* Govt of Nat'l Coalition, SDP, True Finns likely -Katainen
* True Finns leader criticises rescue for Portugal
(Updates with likelihood of three-way coalition)
By Terhi Kinnunen and Jussi Rosendahl
HELSINKI, April 18 The True Finns, the anti-euro
party voted into a powerful role in the Helsinki parliament at
the weekend, expect the European Union to change plans for a
bailout of Portugal, its leader said on Monday.
The True Finns' hostility to the bailout is the biggest
hurdle in talks that begin this week, when the right-leaning
National Coalition will reach out to the populist party and
opposition Social Democrats to form a majority government.
"Of course there will have to be changes," Timo Soini said
of the Portugal package, a day after the party more than
quadrupled its share of the vote to turn Finland's pro-EU
politics on their head.
True Finns came third in Sunday's election with 19 percent
of the vote, raising its number of seats in the 200-strong
parliament to 39 from 5 in the 2007 election.
Finland's parliament, unlike others in the euro zone, has
the right to vote on EU requests for bailout funds.
Rising political populism around Europe, driven by public
anger over the impact of the financial crisis, may well make
deals on solving euro zone debt woes increasingly difficult.
The National Coalition, which won the election with 20.4
percent, will launch government formation talks under its
leader, outgoing Finance Minister Jyrki Katainen.
Katainen said the new coalition, expected to be formed by
mid- to late May, will likely include the three biggest parties:
the National Coalition, Social Democrats and True Finns.
"We have to get a majority for the parliament, and programme
issues have to be agreed upon," Katainen was quoted as saying by
the Finnish news agency STT.
But political commentators said the government formation
talks could be the most difficult in decades, because the three
parties are so far apart on the bailout and other key economic
policies such as corporate taxes and pension reforms.
And even if such a coalition could be formed, analysts said
it would have a difficult time agreeing on policy.
"It would be a very heterogenous, very difficult coalition,"
said Sixten Korkman, managing director at the Research Institute
of the Finnish Economy.
For reaction from analysts, click on [ID:nLDE73H0G3]
For a Breakingviews column on the fallout [ID:nLDE73H0NW]
For a story on the euro zone, click on [nLDE73H0IC]
For more stories on election impact, click [nLDE7350WP]
For an analysis on populism and EU bailouts [nLDE73H0DZ]
For a graphic link.reuters.com/ner98r
POPULISM BOOM, DEBT WOES
Katainen has stressed that whatever the makeup of the next
government, it will remain pro-euro and supportive of the
bailout plans. The European Commission said it expected Finland
to honour its commitments to the euro zone bailout fund.
Representatives of the commission, European Central Bank and
International Monetary Fund were meeting Portuguese officials in
Lisbon on Monday to set the terms for the bloc's third rescue in
a year after bailouts for Greece and Ireland.
However, there is growing speculation that Greece will
restructure its debt and there is increasing pressure on other
so-called euro zone peripheral countries, with Spanish 10-year
bond yields pushing towards record highs near 5.6 percent.
In Finland, support for the True Finns reflects public
frustration about footing the bill for weaker economies such as
Greece, Ireland and Portugal, and anxiety over unemployment and
Finland's rebound from the global financial crisis has done
little to increase the number of jobs. Its flagship company,
Nokia, is struggling to compete with Apple Inc and Asian handset
makers, and is expected to shed jobs soon.
"Finland has neglected many domestic issues in all this EU
twaddle. Of course the troubled countries should be helped
somehow, but the terms have to be tight," said a public servant,
37, who gave his name as Jari. He voted for the True Finns.
Some voters also cited a distrust of incumbent politicians.
Prime Minister Mari Kiviniemi's Centre Party, hit by a political
funding scandal, suffered the biggest setback, losing 16 of 51
seats in parliament. She said it would go into opposition.
While it remains unclear whether the True Finns will grab
influential posts in the new cabinet or succeed in blocking the
bailout, analysts say the party is sure to gain a bigger say.
Saxo Bank chief economist Steen Jakobsen said a coalition
with the Social Democrats and/or True Finns would make it hard
for the government to fully support the Portugal bailout without
a schedule for how Greece is to restructure.
The Social Democrats support the EU but have criticised the
bailout, saying private investors and banks should shoulder more
of the responsibility.
Analysts also say the new government will need to take into
account strong voter discontent and take a harder line against
Brussels. "In terms of European Union policies, Finland will
become a more difficult partner," said Korkman.
(Additional reporting by John Acher; Writing by Ritsuko Ando;
Editing by Janet Lawrence and Mark Heinrich)