Portugal government risks collapse over austerity cuts

Portugal's government looked likely to collapse Wednesday, analysts said, after opposition parties refused to back austerity measures drafted to help the country avoid a bail-out by the European Union and International Monetary Fund.

The Portuguese parliament was due to vote Wednesday on budget cuts unveiled earlier this month by the government. 

The main opposition parties plan to vote against the cuts and a failure of the bill could trigger both a snap election and an international financial rescue.

Portugal faces repayments of €4.23 billion ($6.02 billion) in debt next month. According to the Wall Street Journal, uncertainty about the course of economic policy ahead of an election would likely increase Portugal's already high borrowing costs.

Portugal is also raising taxes and implementing deep spending cuts in an effort to convince investors it can curb its debt and avoid a bailout.

JPMorgan economist Nicola Mai told Bloomberg that Portuguese Prime Minister Jose Socrates has been attempting to find a compromise with the opposition on the package, designed by the minority Socialist government with input from the European Central Bank and the European Commission, “but the opposition does not seem to buy into this.”

Opposition parties, including the Social Democrats, have said the new measures will push the country further into a recession, according to the Wall Street Journal.

London-based Mai said: "The likelihood that the Portuguese government will fall this week looks high. This suggests that the sovereign will likely access" the European Financial Stability Facility "in the near term."

European Union leaders meet Thursday and leaders hope to finalize "a grand bargain" to resolve the euro zone debt crisis, and according to The Financial Times the crisis in Lisbon is likely to dominate discussion.

Socrates' future hangs on Wednesday's vote: the two-term prime minister, who has refused to follow Greece and Ireland in seeking a financial rescue package, has repeatedly threatened to resign over the issue.

Socrates has led a minority government since 2009 and relied on the agreement of opposition parties to cut the budget deficit to 4.6 percent of gross domestic product this year, from about 7 percent in 2010. Should he step down, elections could not be held for at least two months.