Portugal's centre-right opposition Social Democrats (PSD) agreed today to set conditions in return for their support in parliament for the minority Socialist government's 2011 budget, the party said.
The decision could either extend or allay concerns about Portugal's ability to introduce an austerity budget, depending on how the ruling Socialists react to the demands.
Financial markets view a tight budget as critical to restoring confidence in the country's finances.
"The conditions have been set, it is up to the government to meet the conditions to approve the budget," PSD secretary general Miguel Relvas told journalists after a five-hour long meeting of the party's council.
Fernando Ruas, one of the PSD councillors, said the conditions included a smaller increase in value-added tax than the government wants, a suspension of big infrastructure projects and independent monitoring of public finances.
Mr Relvas said the party's governing council had also decided the party's political commission - a smaller grouping of PSD leaders - would make the final decision on backing the budget vote which will take place in parliament on October 29th.
The decision to impose conditions on the minority government, which does not have the numbers in parliament to pass the budget without the PSD's support, was likely to put the onus back on the government after it warned of political chaos if the opposition did not support the budget.
PSD leaders have previously voiced anger at threats by prime minister Jose Socrates that he would resign if the budget was not passed. They said they felt blackmailed to pass a budget they don't agree with.
"Does the government want to launch the country into a political crisis, creating the conditions for a rejection of the budget?" PSD vice-president Marco Antonio Costa told reporters as he left the meeting.
"Now, all the political conditions are in place for the government to accept these proposals and grab the PSD's initiative to pass the budget," he said.
Finance minister Fernando Teixeira dos Santos has previously said he would consider all proposals to bring about a budget deal.
One-third of the government's budget consolidation plan for next year hinges on tax hikes. The rest comes from spending cuts, including a 5 per cent cut in civil servants' salaries.
Portugal's euro zone partners have been pressing the country to get the budget passed, concerned that failure would force up bond yields and increase the likelihood of a Greek-style bailout.
The government wants to cut the budget deficit to 4.6 per cent of gross domestic product next year from 7.3 per cent this year. In 2009 it reached 9.3 per cent.
The risk premiums on Portuguese bonds hit euro lifetime highs at the end of last month on concerns about its ability to cut the budget deficit. The spreads have now narrowed to their tightest levels in nearly two months.
Reuters