Image: Portuguese Prime Minister Jose Socrates announces his resignation at his official residence in Sao Bento in Lisbon
Rafael Marchante  /  Reuters
Portuguese Prime Minister Jose Socrates announces his resignation to journalists Wednesday during a press conference at his official residence in Sao Bento in Lisbon.
updated 3/23/2011 5:38:23 PM ET 2011-03-23T21:38:23

Debt-stressed Portugal's prime minister says he has quit after opposition parties scuppered his proposals devised to avoid a bailout.

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

Socrates said in a statement the defeat made it impossible for him and his government to ensure Portugal's economic future.

The rejection "had taken away from the government all conditions to govern," Socrates said in a televised statement.

He said his government would remain in power in a caretaker capacity.

The government's resignation was expected after days of political tension, but could re-ignite market anxiety about the financial soundness of the wider eurozone.

European leaders hope to soothe nervous international investors at a summit starting Thursday.

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

According to constitutional procedure, the prime minister has to present his resignation to the head of state. Socrates and President Anibal Cavaco Silva were due to meet later Wednesday. Officials said Socrates would address the nation on television after that meeting.

Many analysts expected the government's parliamentary defeat to lead to elections in May or June.

Debt woes, and differences over how to tackle them, also brought down Ireland's government earlier this year, forcing an election that was won by the main opposition party.

The government's downfall would set Portugal, a country of 10.6 million people, adrift just as it is trying to restore its fiscal health.

By most measures, Portugal is one of the 17-nation eurozone's smallest and frailest economies, growing at a meager rate of less than 1 percent a year over the past decade when it amassed heavy debts.

Finance Minister Fernando Teixeira dos Santos said the political crisis could bring a bailout closer and lead to even greater sacrifices for the Portuguese.

"Rejecting (this plan) will worsen financial market conditions, bringing additional difficulties for the country's financing which I doubt we will be able to bear on our own," he told Parliament.

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.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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