Portuguese opposition offers conditional support to budget

(LISBON) - Portugal's principal opposition party, the Social Democrats (PSD), said on Wednesday it was prepared to back adoption of the 2011 budget on condition that the government pledged to avoid tax rises.

"The PSD is ready to allow the budget to be adopted in the framework of parliamentary negotiations on condition that the government pursue a policy to reduce spending rather than to rely on tax hikes," PSD leader Pedro Passos Coelho said after meeting Portuguese President Anibal Cavaco Silva.

Prospects for the budget dimmed -- and fears for a political crisis rose -- last week after the PSD refused an offer to negotiate the spending plan with the ruling Socialists, who lack a parliamentary majority.

The PSD objected in particular to tax increase components in the budget.

The deadlock further complicated government efforts to convince investors that Portuguese public finances, plagued by a huge debt and public deficit, were sound.

In the face of investor distrust, Portugal has suffered a sharp rise in the rate it must offer to attract support on the international bond market.

Prime Minister Jose Socrates has hinted that he would resign if no agreement were reached on the budget, which must be presented to parliament before October 15.