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UPDATE 3-Portugal austerity vote likely Wed, could topple govt
March 21, 2011 / 12:05 PM / in 7 years

UPDATE 3-Portugal austerity vote likely Wed, could topple govt

* 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 (Reuters) - 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.

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For Take a Look on Portugal’s debt crisis [ID:nLDE68T0MG]

For interactive timeline on the Eurozone debt crisis

link.reuters.com/can23r

For Q+A on Portugal’s political crisis [ID:nLDE72K1WT]

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“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The party has withdrawn the backing for cost-cutting it had given to Socrates earlier in the euro debt crisis.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 consensus.”

YIELDS FALL

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 in.

“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 Evans/Ruth Pitchford)

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