Portugal braces for govt collapse

Portugal's government could collapse Wednesday after opposition parties withdrew their support for another round of austerity policies aimed at averting a financial bailout.

The expected defeat of the minority government's latest spending plans in a parliamentary vote will likely force its resignation and could stall national and European efforts to deal with the continent's protracted debt crisis.

The vote comes on the eve of a two-day European Union summit where policymakers are hoping to take new steps to restore investor faith in the fiscal soundness of the 17-nation eurozone, including Portugal.

Last year, both Greece and Ireland had to accept massive rescue packages after markets lost faith in their governments' efforts to deal with their debt burdens.

The political tension fueled a rise in Portugal's borrowing rates, just as it is trying to cut spending. The yield on the country's 10-year bond, for example, was up to 7.57 percent Tuesday — just shy of its euro-era record level. The interest rate has been above 7 percent for several weeks despite the government's earlier austerity measures which, its political rivals say, failed to quell investor fears.

As in Greece, the austerity policies — including tax hikes and pay cuts — have prompted an outcry from trade unions and numerous demonstrations and strikes. Train engineers walked off the job during the morning commute Wednesday, causing widespread travel disruption.

By most measures, Portugal is one of the eurozone's smallest and feeblest economies but its financial collapse would likely trigger a fresh bout of nerves over other debt-heavy — and bigger — euro countries such as Spain, Belgium and Italy.

"Portugal seems very likely to become the third ... eurozone country to need a bailout," Emilie Gay, European economist at Capital Economics said.

[link to news.yahoo.com]