SOFIA (Reuters) - The winner of Bulgaria's parliamentary election signed an accord on Thursday to form a minority coalition government after a month of talks, a welcome breakthrough for a country reeling from a bank crisis and struggling to revive economic growth.
The center-right GERB party will partner a group of five tiny pro-market parties, paving the way for former bodyguard Boiko Borisov to become prime minister again after he was toppled by street protests in early 2013.
The deal means Bulgaria has avoided the worst case scenario of yet another snap election. Borisov's government will be Bulgaria's fifth in under two years, a period of instability that has stifled any meaningful attempt to implement reforms and root out corruption in one of Europe's poorest countries.
But the new coalition will rely on two other parties to guarantee its survival in parliament, which could tie its hands on policymaking and raises doubts over its durability.
High on its priorities will be dealing with the fallout from Bulgaria's worst financial crisis since the 1990s, which on Thursday led to the central bank revoking the license of Corporate Commercial Bank (Corpbank).
"We have made enormous efforts. At least 10 times we were on the brink of new elections. We have made serious sacrifices," Borisov said after the signing of the coalition deal, adding that he hoped the new government would have a "long life".
Corpbank has been shut since a run on deposits in June and its main owner has been charged with embezzlement. Tipping Corpbank into insolvency will knock about 0.5 percentage points off Bulgaria's economic growth, according to the central bank.
It will probably force the government to raise new debt in order to pay out guaranteed deposits and could trigger years of lawsuits by bondholders and larger depositors.
Corpbank's clients have not been able to access their deposits for more than four months, sparking waves of angry protests and a sharp rebuke from the European Commission.
GERB emerged as the largest party after the Oct. 5 election but fell dozens of seats short of a majority, in the most fractured result and the lowest voter turnout Bulgaria has seen since the fall of communism in 1989.
Borisov will present his cabinet to the president later on Thursday. The new government will face a vote of confidence in parliament on Friday, which it is expected to pass.
"Talks have been hard and many compromises have been made, but the very fact that we have a government is good news," said Daniel Smilov, political analyst with the Sofia-based Center for Liberal Strategies.
"(But) the problems are many and everybody expects changes and bold decisions - in the energy sector, for one. If the government fails to deliver and switches to survival mode, it will quickly lose a serious part of its legitimacy," he said.
Thursday's deal partners GERB, which is pro-Western and supports Bulgaria's 10 percent flat tax, with a group known as the Reformist Bloc committed to tackling graft, transparent public procurement deals and overhauling the judiciary.
Formed during huge anti-corruption protests last year, the Reformists are prone to internal squabbles. Together with GERB they hold 107 seats - 14 short of a parliamentary majority.
The coalition in turn agreed a deal for support with the nationalist Patriotic Front, whose policies include building a wall on the Turkish border, an energy price freeze and limiting welfare handouts that often go to the Roma minority.
The government will also receive support from a new left-leaning party known as the Alternative for Bulgarian Revival (ABV), which champions a progressive tax rate and Russian-led energy projects such as the South Stream gas pipeline.
Borisov nominated GERB's Vladislav Goranov, 37, a former banker, for the post of finance minister. GERB will also control EU funds and infrastructure but about a third of ministers will be from the Reformist Bloc and will oversee sectors such as health, justice and education where painful reforms are needed.
Borisov said he would keep the Reformist Bloc's Daniel Mitov, a strong supporter of Bulgaria's EU and NATO membership, as foreign minister, a post he had held in the interim cabinet.
The prolonged political instability has taken its toll on Bulgaria. Foreign investment has fallen sharply, economic growth may slow to 0.6 percent next year and ratings agency Standard & Poor's downgraded Bulgaria in June to one notch above junk.
The new government will have to decide whether to accept a proposal from the interim administration which has governed Bulgaria since August to more than double the fiscal deficit to 4 percent from its current target to cover revenue shortfalls.
It also will try to unfreeze hundreds of millions of euros in blocked EU development funds.
Bulgaria held a snap election in October after a Socialist-led government quit in July after barely a year in office which was dogged by many months of street protests over rampant corruption in the Balkan nation of 7.3 million people.
Writing by Matthias Williams; Editing by Gareth Jones