Portugal's foreign minister, party head Portas resigns

LISBON Tue Jul 2, 2013 12:56pm EDT

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LISBON (Reuters) - Portugal's Foreign Minister Paulo Portas has resigned, the president's office said on Tuesday, in a further blow to the center-right coalition that has kept the country's international bailout on track.

Finance Minister Vitor Gaspar, the architect of the spending cuts and tax hikes required by the bailout, resigned on Monday citing the growing erosion of public support for the program.

Portas heads the rightist CDS-PP party and without its support, the government would lose its majority in parliament.

"It looks like the end-game for the government," said Antonio Costa Pinto, a political scientist. "There is a possibility of the government staying on in minority with conditional support from CDS-PP, but the opposition will demand a new election and the president will be in a difficult situation."

Portuguese bond prices fell sharply after the announcement, with the returns investors demand to hold 10-year bonds rising 35 basis points. The news weighed on the euro.

Portas has been at odds with Prime Minister Pedro Passos Coelho and Gaspar over their adherence to the terms of the 78 billion euro ($102 billion) bailout, which has sent the country into its deepest recession since the 1970s.

Passos Coelho was due to address the nation at 3:00 a.m. EDT.

State news agency Lusa quoted a letter sent by Portas as telling the prime minister he strongly disagreed with the appointment of Treasury Secretary Maria Luis Albuquerque to replace Gaspar.

"As a consequence, and given the decisive importance of the finance minister, staying in government would be a pretence," Lusa quoted Portas as saying in the letter. "It is not politically sustainable (for me to stay). The prime minister chose to follow the path of continuity at the finance ministry. I respect it but I disagree."

Still, the swearing in ceremony for Albuquerque went ahead as scheduled on Tuesday afternoon.

Portugal has struggled to meet the terms of its bailout as the country's recession deepened and the prime minister has said he may seek further relaxation of budget goals if the economy worsens further.

The center-right government has led the country ever since Portugal got the bailout, requested by the former Socialist government before it collapsed, in 2011.

(Reporting by Axel Bugge and Andrei Khalip; Additional reporting by Sergio Goncalves and Daniel Alvarenga; Editing by Ruth Pitchford)

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