Portugal's parliament will vote on the government's latest austerity measures tomorrow, setting the stage for a potential collapse of the minority Socialist administration a day before a European summit.
Prime minister Jose Socrates has threatened to resign if the opposition fails to approve the measures. The main opposition Social Democrats (PSD) are refusing to back them and have begun to talk about snap elections, complicating the country's drive to avoid following Greece and Ireland in taking a bailout.
"Tomorrow the resolution on the measures will be voted," lawmaker Heloisa Apolonia of the Green Party said after a meeting of parliamentary leaders on Tuesday. "Tomorrow the plenary will give answers to the country."
The government had hoped to obtain support for its plan before a key European Union summit gathers on Thursday to approve a beefed-up euro zone rescue fund.
It says it remains open to talks on the measures, which include further spending cuts to ensure it can reach a target of cutting the public deficit to 4.6 per cent of gross domestic product after beating last year's goal of 7.3 per cent.
Some analysts have said that markets have begun to price in a change of government.
"It is inevitable that the Portuguese people have the final say," PSD leader Pedro Passos Coelho said late yesterday, adding that the country needed a broad coalition after elections to solve its problems.
Socialist bench leader Francisco Assis was expected to hold a news conference later today.
With a bailout seen as pretty much inevitable and the opposition also broadly committed to the austerity path, even the ousting of the government may not elicit dramatic market reaction.
Because of Mr Socrates' repeated threat to resign over the austerity measures, the two-term prime minister's future now hangs on the vote.
He threatened to quit in similar circumstances last year but the Social Democrats turned up to offer backing each time, including over the 2011 budget.
This time the PSD decided they have had enough, hoping instead that their lead in opinion polls will translate into them taking power whenever a snap election is held.
"Basically, we now have only two hypotheses - a controlled fall of the government and an uncontrolled collapse, but with the PSD openly saying it wants an election and the president silent everything points to the second option," said political analyst Viriato Soromenho Marques at the University of Lisbon.
Ultimately, for the Portuguese facing lower salaries, higher taxes and a recession, things may not change much as the Social Democrats are likely to stay the austerity course.
Passos Coelho said his party did not rule out following Greece and Ireland in requesting an international bailout if it came to power, if such a request were inevitable for Portugal to recover from its difficult economic situation.
The government yesterday presented its latest economic plan, including broad economic outlines for the coming year and showed that for the first time it now expects there to be a recession in 2011 as most economists have forecast.
The document predicted a contraction of 0.9 per cent in gross domestic product this year compared with the previous estimate of 0.2 per cent growth.
Portugal's bond yields have soared during the year-long sovereign debt crisis with the yield on its benchmark 10-year bond hitting euro lifetime highs of around 7.8 percent earlier this month.
The yield was at 7.6 per cent today and the spread to safer German Bunds was unchanged at 432 basis points.
Reuters
