Portugal gov't faces downfall over austerity measures

A domestic political spat over Portugal's austerity policies threatened Monday to derail progress on resolving the debt-laden country's financial woes and could spell the minority government's downfall.

Market pressure on Portugal, viewed as at risk of needing a bailout like Greece and Ireland due to its unsustainably high borrowing costs, eased following a European agreement over the weekend on a package of measures.

But Portugal's opposition parties are all refusing to green-light the beleaguered minority government's latest raft of tax hikes and spending cuts which helped clinch the eurozone deal.

Even though Prime Minister José Sócrates says he doesn't need Parliament's approval for the new measures, the outcry has deepened uncertainty about his centre-left government's future, and could quickly reignite market volatility.

"At this moment, Portugal's political stability is evidently in question," Francisco Assis, the governing Socialist Party's parliamentary leader, said Monday.

Portugal's next general election is due in 2013, but a motion of no confidence in Parliament would bring down the government if the opposition parties grouped together.

The latest batch of measures included a freeze on all old-age pensions through 2013 and a special tax on pensions over US$1,500 a month as well as other welfare reductions.

The steps, which come amid rising interest rates and gas prices that are pinching pockets, provoked outrage from trade unions. Previous austerity measures triggered a wave of strikes and demonstrations.

- AP