Portugal's PM quits after debt-cutting plan nixed

The Associated Press
Wednesday, March 23, 2011; 6:25 PM

LISBON, Portugal -- Debt-stressed Portugal's prime minister quit Wednesday after opposition parties rejected his latest austerity measures devised to avoid a bailout that looks increasingly likely.

All opposition parties united to defeat Prime Minister Jose Socrates' proposals in a parliamentary vote, saying the belt-tightening went too far.

"The opposition (parties) took away the government's ability to continue running the country. As a consequence, I have tendered my resignation to the president," Socrates said in a televised statement.

In accordance with constitutional procedure the prime minister presented his resignation to the head of state, who is mostly a ceremonial figurehead and has no executive powers, before announcing it publicly. His resignation also ended the center-left Socialist government's six-year period in power.

The government's latest austerity package was its fourth set of measures in 11 months as Portugal has scrambled to avoid the embarrassment and financial consequences of asking for outside help. It has introduced tax hikes and pay cuts that have angered trade unions and prompted a wave of street demonstrations and strikes.

Portugal's problems could thwart efforts by European leaders to persuade nervous investors that all is well in the eurozone, including Portugal. It could launch another spell of market turbulence for the bloc and doom Lisbon to accepting financial assistance like Greece and Ireland last year.

European leaders hope to soothe nervous international investors at a two-day summit starting Thursday. Socrates is scheduled to attend the meeting.

"This crisis comes ... at the worst possible time - ahead of a summit that's decisive for Portugal and decisive for Europe too," Socrates said.

He said the political crisis would entail "deeply negative consequences" for Portugal, one of the 17-nation eurozone's smallest and frailest economies.

The opposition's rejection of his plan increased the probability of Portugal asking for outside help which would entail "much tougher measures" than those he proposed and which had won the backing of European leaders, Socrates said.

Foreign financial assistance comes with strings attached, including a role for the International Monetary Fund which strips away government control of key fiscal policies for years, making it a last resort for cash-strapped countries.

Socrates said his government had done all it could to avert a bailout "so we wouldn't end up in a situation like Greece or Ireland" where fiscal measures imposed by the bailout terms have squeezed the finances of families and companies.

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