Prime Minister Jose Socrates has threatened to resign if the opposition fails to approve the measures. The main opposition Social Democrats (PSD) are refusing to back them and have begun to talk about snap elections, complicating the country’s drive to avoid following Greece and Ireland in taking a bailout.
“Tomorrow the resolution on the measures will be voted,” lawmaker Heloisa Apolonia of the Green Party said after a meeting of parliamentary leaders on Tuesday. “Tomorrow the plenary will give answers to the country.”
The government had hoped to obtain support for its plan before a key European Union summit gathers on Thursday to approve a beefed-up euro zone rescue fund.
Francisco Assis, parliament bench leader for the Socialists, said there was still time for a compromise, while failure to pass the government measures would throw the country “into an abyss.”
“The next 24 hours will be decisive for the country, not only in coming months but also in coming years,” said Assis.
The latest, disputed measures include further spending cuts to ensure the government can reach a target of cutting the public deficit to 4.6 percent of gross domestic product after beating last year’s goal of 7.3 percent.
Some analysts have said that markets have begun to price in a change of government and see a bailout as a near certainty.
“It is inevitable that the Portuguese people have the final say,” PSD leader Pedro Passos Coelho said late on Monday, adding that the country needed a broad coalition after elections to solve its problems.
Still, economic policy may not change much as the opposition is also broadly committed to the austerity path.
Portugal’s benchmark 10-year bond yield rose to 7.62 percent from Monday’s 7.53 percent and the premium compared to German Bunds rose to 436 basis points from 430 bps.
Portugal’s borrowing costs have soared during the year-long sovereign debt crisis with the 10-year bond yield hitting euro lifetime highs of over 7.8 percent earlier this month, which ministers said was an unsustainable financing level.
Because of Socrates’ repeated threat to resign over the austerity measures, the two-term prime minister’s future now hangs on Wednesday’s vote.
He threatened to quit in similar circumstances last year but the Social Democrats turned up to offer backing each time, including over the 2011 budget.
This time the PSD decided they have had enough, hoping instead that their lead in opinion polls will translate into them taking power whenever a snap election is held.
“Basically, we now have only two hypotheses - a controlled fall of the government and an uncontrolled collapse, but with the PSD openly saying it wants an election and the president silent everything points to the second option,” said political analyst Viriato Soromenho Marques at the University of Lisbon.
President Anibal Cavaco Silva is seen by some analysts as a possible mediator in the crisis but has remained silent so far after meeting Passos Coelho and Socrates last week.
If the government resigns it is up the president to set a snap election and decide on a caretaker administration with limited powers until a new government is formed. The constitution stipulates that the country can hold a snap election at the earliest 55 days after the president calls them.
Passos Coelho said his party did not rule out following Greece and Ireland in requesting an international bailout if it came to power, if such a request were inevitable for Portugal to recover from its difficult economic situation.
The government on Monday presented its latest economic plan, which showed it now expects there to be a recession in 2011 as most economists have forecast. The document predicted a contraction of 0.9 percent in gross domestic product this year compared with the previous estimate of 0.2 percent growth.
