Portugal's minority socialist government and opposition Social Democrats (PSD) reached an agreement on the 2011 budget today, averting a political crisis in one of the euro zone's financially weakest members.
The agreement, confirmed by the finance ministry, comes after a lengthy showdown between the government and the PSD which had threatened to derail the budget and plunge the country into paralysis.
"The agreement will be signed today at 11 o'clock in parliament," a finance ministry spokeswoman said.
Brussels, investors and Portugal's large banks have piled pressure on both sides to reach a deal. Failure to do so could have forced the government to seek a financial rescue from its European partners, as Greece did earlier this year.
Fears grew after talks between the government and the PSD collapsed on Wednesday. But yesterday prime minister Jose Socrates and PSD leader Pedro Passos Coelho said they were open to new talks, suggesting an agreement was possible after all.
Because the government rules without a majority it needs the support of the opposition to pass legislation.
The PSD has insisted on more spending cuts and smaller increases in taxes to cut the budget deficit, arguing that the Portuguese state sector is bloated and needs deep reforms.
Mr Socrates had threatened to resign if the budget was not passed, which would have created months of uncertainty because, under the constitution, a snap election could only be held in May at the earliest.
Mr Socrates has promised to cut the deficit to 4.6 per cent of GDP next year from 7.3 per cent this year and needs the PSD to vote for the budget or abstain in order to pass it. A first vote in parliament is scheduled for Wednesday.
Reuters