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President says Portugal must respect EU, avoid return to crisis

LISBON (Reuters) - Portugal’s new center-right president took office on Wednesday, telling the Socialist government to stick to the budget rigor demanded by Brussels to avoid a return to economic crisis.

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Marcelo Rebelo de Sousa takes over at a time of growing pressure on the government to cut spending further to meet budget goals, which could exacerbate growing friction between the ruling Socialists and their far-left allies in parliament.

His inauguration marks a new phase for Portuguese politics as next month he will regain the constitutional powers to dissolve parliament, fire the government and call a new election.

Under the constitution, that power is on hold for six months after a national election, which was held in October. While he would need a reason to resort to such measures, it does increase pressure on the government.

“We have to be loyal to the commitments we have adopted, especially the ones that are part of our foreign policy, such as the European Union,” Rebelo de Sousa told parliament where he was sworn in.

“Without rigor and financial transparency the risk of returning to crises is painfully larger.”

“This will certainly not be an easy presidency,” said former prime minister Pedro Passos Coelho, who was ousted by the Socialists after the inconclusive election in October.

Socialist Prime Minister Antonio Costa teamed up with the far-left Communists and Left Bloc in November, uniting around the promise to roll back austerity imposed by the previous conservative government under Passos Coelho.

But Costa has also promised to stick to EU budget rules and last month was forced by Brussels to hike indirect taxes by nearly 1 billion euros to tighten the budget further. The EU is pushing for more cuts, but Costa has said they are not necessary.

Catarina Martins, who heads the Left Bloc, said Rebelo de Sousa’s message was a “conservative vision of the country” even though he attempted to reach out to everybody.

“Portugal cannot have its capacity at making decisions, its economy and its jobs increasingly destroyed by decisions that are taken abroad,” said Martins after the inauguration ceremony.

Filipe Garcia, head of the Informacao de Mercados Financeiros consultancy, said Rebelo de Sousa would initially attempt to strike a conciliatory tone.

“The government is likely to last at least until October, but Brussels will put pressure on for more measures, which may cause friction between the parties supporting the government,” he said.

Concerns surrounding Portugal’s public finances contributed to sending bond yields sharply higher in February. They have since reversed somewhat, but at a bond auction on Wednesday the country’s borrowing costs rose sharply.

President Rebelo de Sousa won a Jan. 24 election, promising to repair political divisions and the hardship of Portugal’s 2011-14 bailout. He is a former head of the center-right Social Democrats and has been a television commentator for many years.

Unlike his predecessor, Anibal Cavaco Silva, he has never previously held a top state position.

Additional reporting by Sergio Goncalves; Editing by Andrew Heavens