Portugal government faces risk of expulsion

By Barry Hatton

Associated Press

Published: Monday, March 14 2011 9:41 a.m. MDT

LISBON, Portugal — A domestic political spat over Portugal's austerity policies threatened Monday to derail progress on resolving the debt-laden country's financial woes and could spell the minority government's downfall.

Market pressure on Portugal, viewed as at risk of needing a bailout like Greece and Ireland due to its unsustainably high borrowing costs, eased Monday following European agreement on a package of measures.

But Portugal's opposition parties are all refusing to green-light the beleaguered minority government's latest raft of tax hikes and spending cuts which helped clinch the eurozone agreement.

Even though Prime Minister Jose Socrates says he doesn't need Parliament's approval for the new measures, the outcry has deepened uncertainty about his center-left government's future and could quickly reignite market volatility.

"At this moment, Portugal's political stability is evidently in question," Francisco Assis, the governing Socialist Party's parliamentary leader, said Monday.

Political tension rose sharply after a post-midnight news conference Friday by the leader of the main opposition Social Democratic Party, Pedro Passos Coelho, who announced he would not support the government's latest measures. Other smaller opposition parties, seething that they had not been consulted about the plan, followed suit.

The government also reportedly snubbed the country's conservative president, with whom it has frosty relations, by not informing him about the plan before announcing it in what was seen as a breach of protocol.

"A minority government at war with the President in the middle of this crisis won't last for long," daily newspaper i said in an editorial Monday.

Three previous austerity packages over the past 11 months, each enacted after the country's borrowing costs surged, won parliamentary approval thanks to the center-right Social Democrats' consent.

The failure of the latest austerity measures would likely cause a renewed jump in market tensions in Portugal, offsetting the EU's efforts to ease the crisis.

Portugal's next general election is due in 2013, but a motion of no confidence in Parliament would bring down the government if the opposition parties grouped together.

The latest batch of measures included a freeze on all old-age pensions through 2013 and a special tax on pensions over €1,500 ($2,067) a month as well as other welfare reductions.

The steps, which come amid rising interest rates and gas prices that are pinching pockets, provoked outrage from trade unions. Previous austerity measures triggered a wave of strikes and demonstrations.

Finance Minister Fernando Teixeira dos Santos appeared to backtrack somewhat Monday.

"The government is ready for talks with the opposition parties and is open to suggestions and negotiations," he told reporters in Brussels.

Some analysts fear the austerity measures could backfire as they bite further into Portugal's weak economic recovery after a contraction in 2009. The Bank of Portugal expects a double-dip recession this year, while the jobless rate has risen to a record 11.2 percent.

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