* PSD refuses to back recent measures
* Parliament vote likely later this week
* PM Socrates threatened to quit if no approval
* Analyst says crisis mostly priced in by markets
(Adds finance mininster, updates yields)
By Andrei Khalip
LISBON, March 21 Portugal's main opposition
Social Democrats (PSD) again refused on Monday to back new
government austerity measures, raising the risk the minority
administration could fall after a vote later this week.
The Socialist government will present its latest austerity
plan to parliament on Monday with a vote expected on Wednesday.
Prime Minister Jose Socrates has threatened to resign if the
opposition fails to approve the measures. He says a rejection
would exacerbate the country's crippling debt crisis and push it
into following Greece and Ireland in seeking a bailout.
But markets have long seen Portugal's request for a bailout
as a certainty, and analysts say a change of government is
unlikely to make much difference, given that the Social
Democrats are expected to stay the austerity course.
PSD leader Pedro Passos Coelho said after meeting Socrates
that his party, which leads in opinion polls, backed budget
consolidation goals promised to Brussels, but not the newer
measures which he said were rushed and inadequate.
For Take a Look on Portugal's debt crisis [ID:nLDE68T0MG]
For interactive timeline on the Eurozone debt crisis
For Q+A on Portugal's political crisis [ID:nLDE72K1WT]
"We reaffirmed that the measures presented by the government
... do not deserve the support or approval of the PSD since they
lay out a profoundly unfair path for the Portuguese," Passos
Coelho told reporters.
The party has withdrawn the backing for cost-cutting it had
given to Socrates earlier in the euro debt crisis.
"There are no conditions of trust for any talks to be
resumed between the PSD and the government," Passos Coelho said.
Finance Minister Fernando Teixeira dos Santos said in
Brussels: "Political debate is being made very tense by the
opposition. I think it is very difficult for us to reach a
Portugal's 10-year debt yield was little changed on Monday
from Friday's levels at around 7.5 percent and the premium
investors demand over benchmark German Bunds narrowed. Gilles
Moec, senior economist at Deutsche Bank, said the political
turmoil was mostly priced in.
"The problem with Portugal is that for a lot of investors
it's a country that, no matter what, is going to go to the EFSF
(rescue fund) ... so whatever misadventures we have between now
and the actual decision, a lot of it is probably already priced
"There would be additional volatility, of course, if the
government was to fall. To me, what is crucial is whether or not
there would be a fully functioning government with some kind of
parliamentary backing at the time when external support is
requested," he added.
Parliament has its first scheduled session this week on
Wednesday and is unlikely to discuss and vote on the package
before then. The government will present the plan, first
announced on March 11, to parliamentary leaders later on Monday.
The timing of the vote would depend on whether and when one
of the opposition parties presents a resolution on the package
in parliament. The government needs opposition support to pass
legislation as it rules without a majority.
The government said it was open for talks, hoping to obtain
support for the measures before Thursday's start of a key
European summit to approve a beefed up euro zone rescue fund.
"I'd say the government's fall is probable, though not
inevitable, which shows there is very little room for
negotiations," said political scientist Antonio Costa Pinto.
"The worst thing is that the model of a grand coalition
seems more and more unlikely after this fallout, even for this
period of the acute debt crisis."
The PSD cautiously raised the idea of a broad coalition on
Monday in a document, but did not make clear if it meant it will
seek to form a ruling coalition after a possible snap election.
The extra spending cuts and tax changes the government
proposes are aimed at ensuring the budget deficit is brought
down to 4.6 percent of gross domestic product in 2011, as
promised to Brussels, from around 7 percent last year.
(Additional reporting by Shrikesh Laxmidas and Daniel
Alvarenga, William James in London; Editing by Catherine