The Daily Telegraph By

Portugal has entered dangerous waters. For the first time since the creation of Europe's monetary union, a member state has taken the explicit step of forbidding Eurosceptic parties from taking office on grounds of national interest.

Anibal Cavaco Silva, Portugal's constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika.

He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets. Democracy must take second place to the higher imperative of euro rules and membership.

"In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of Nato," he said.

"This is the worst moment for a radical change to the foundations of our democracy. After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets," he said.

Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.

This is true, but he skipped over the other core message from the elections three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc. Led by the Socialists, they control the Assembleia.

The conservative premier, Pedro Passos Coelho, came first and therefore gets first shot at forming a government, but his Right-wing coalition secured just 38.5pc of the vote. It lost 28 seats.

The Socialist leader, Antonio Costa, has described the president's action as a "grave mistake" that threatens to engulf the country in a political firestorm. "It is unacceptable to usurp the exclusive powers of parliament," he said.

Mr Costa pledged to press ahead with his plans to form a triple-Left coalition, and warning that the Right-wing rump government will face an immediate vote of no confidence. There can be no fresh elections until the second half of next year under the constitution, risking paralysis that puts the country on a collision course with Brussels and threatens to reignite Portugal's debt crisis.

Portugal is no longer under a Troika regime and does not face an immediate funding crunch, holding cash reserves above euros 8bn. Yet the IMF says it remains "highly vulnerable".

Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP. The IMF warns Portugal's "export miracle" remains narrowly based, the headline gains flattered by re-exports with little value added.

The Portuguese Socialists and Communists have buried the hatchet on their divisions, yet they are being denied their parliamentary prerogative. The conservatives and their media allies behave as if the Left has no legitimate right to take power, and must be held in check by any means.

These reflexes are familiar - and chilling - to anybody familiar with 20th century Iberian history, or indeed Latin America. That it is being done in the name of the euro is to be expected.

Greece's Syriza movement was crushed into submission for daring to confront eurozone ideology. Now the Portuguese Left is running into a variant of the same meat-grinder.

Europe's socialists face a dilemma. They are waking up to the unpleasant truth that monetary union is an authoritarian Right-wing enterprise that has slipped its democratic leash, yet if they act on this insight in any way they risk are prevented from taking power. Brussels really has created a monster.