Demissionair kabinet in Portugal zou tot problemen leiden voor economisch herstel (en)
EUOBSERVER / BRUSSELS - Engulfed in problems, Portugal's government could fall just one day ahead of a crucial European summit where the bloc's leaders are set to put the finishing touches on a grand 'comprehensive response' to the eurozone i crisis.
Analysts warn however that should Prime Minister Jose Socrates i step down, a caretaker administration would not have the political legitimacy to sign up to any EU-IMF bail-out should one be forced on the country.
In a political world turned upside down, the country's right-wing opposition is refusing to back the centre-left minority government's proposed cuts to social spending.
The fourth round of austerity announced in a year, the governing Socialists' programme of cuts, focussing on pensions, healthcare and welfare benefits, is to be put to a vote in the parliament on Wednesday.
The government is expected to lose as the parties to its left, the Left Bloc and the Communists, have never backed the government's strategy for exiting the crisis, and now the Social Democrats (PSD), which despite their name are a conservative party and which Lisbon has depended upon until this week to push through its slash-and-burn approach, has changed tack and denounced the new measures as not "credible".
The PSD described the new austerity measures as representing: "the continued failure of government to implement a coherent, credible and sustainable program of structural reform aimed at fiscal consolidation, public debt reduction and economic growth".
On the streets meanwhile, some of the largest demonstrations since democracy returned to the country in 1974 highlight the turmoil the country is undergoing. Last weekend, a record 500,000 individuals took part in a march unconnected to any political party or trade union but organised by a pair of students on Facebook.
Should Prime Minister Jose Socrates lose the vote, he would have to resign and call a snap election, although he would still attend the EU summit in Brussels in a caretaker capacity.
However, once there, he could not commit to any key measures that he does not have the confidence of the parliament to push through.
While the austerity measures were originally intended to soothe markets, the opposite has happened, with the national crisis now making it all the more likely that the government will have to request a bail-out from the EU and IMF.
The yield on Portuguese 10-year bonds jumped at one point to 7.62 percent on Monday, up from 7.53 percent.
Brussels meanwhile called on the PSD, the party of European Commission chief Jose Manuel Barroso i, to act "responsibly".
"The commission, of course, is monitoring very closely the situation in Portugal," said EU economy spokesman Amadeu Altafaj Tardio. "It is up to all Portuguese political actors to take their responsibilities."
Despite the opposition's criticism of the measures, should there be a change of government in the Social Democrats' favour, analysts expect no broad change of economic strategy.
"The PSD might make a few little changes here or there, but they are actually even more [market]-liberal than Socrates," Andre Freire, a political scientist with Lisbon University Institute, told EUobserver.
However, Socrates may be able to pull the rabbit out of the hat. Although Socrates has said he intends to resign if he loses the vote, it is possible that he may not.
"It is not an obligation ... It is more a problem of political conditions, that he has lost credibility with voters. He would no longer have any support for such an important policy package, but there is no legal requirement for him to step down," Friere added.
"There is also the possibility that he could form a new government with elements of the opposition."
The problem comes if he resigns, as: "A caretaker government cannot sign up to any memorandum of understanding [the agreement to deliver a bail-out] with the EU or IMF. There is no political enforcement and it would not be mandatory for the next government."
Which would leave Portugal in economic limbo for two to three months while a snap election was organised.
And any austerity programme contained in such an agreement would undoubtedly be even tougher than the measures Socrates is currently trying to enact.
Were a caretaker prime minister to attempt such a move, the legitimacy of the government would likely be found suspect, a dangerous situation to be in amid growing public anger.
The messy situation in Portugal could also throw a spanner into the works of the EU's 'comprehensive response' to the eurozone crisis, due to be wrapped up at a summit in Brussels at the end of the week.
Beyond the substance of the new measures, EU leaders were hoping that the carefully cobbled together package of measures would be able to draw a line under the crisis, but the chaos in Portuguese threatens to lob some explosive 'externalities' in the direction of the summit.
"Political developments in Portugal could undermine even the limited success the comprehensive package would have had in reassuring investors that the EU had managed to make a fresh start," said Sony Kapoor, the director of Re-Define, an economic think-tank.