Portuguese opposition parties defeated a government austerity plan on Friday, passing their own bill that lets the country's regions rack up even more debt. The move raised new questions about European nations' ability to control their swollen budget deficits.
The vote was also likely to rattle the world's financial markets, which are already concerned that the financial troubles gripping Greece may spread to other vulnerable eurozone countries such as Portugal and Spain.
Portugal's minority Socialist government had fiercely opposed the opposition bill, since it contradicts earlier promises to sharply cut spending. Yet the bill passed 127 to 87, reflecting serious resistance to the proposed austerity measures.
The government's defeat came after senior officials spent hours in closed-door meetings trying to hammer out a compromise. The government says the opposition bill punches a euro400 million ($550 million) hole in its budget over the next four years.
Minister for Parliamentary Affairs Jorge Lacao described the opposition bill as "irresponsible" and said the government will seek to alter the 2010 state budget to nullify the measure.
That could bring further political friction, however, as right-of-center parties have previously promised to abstain from the state budget vote next month, ensuring its passage.
Finance Minister Fernando Teixeira dos Santos went on television late Thursday to declare that the opposition bill would have "grave consequences" for state finances.
"We couldn't send a worse signal at this juncture," he said, vowing to use all the legal and political means he had to stop the bill from taking force.
Portugal's 2009 deficit is expected to hit 9.3 percent of gross domestic product, a national record. The government has pledged to bring the deficit to below the 3 percent limit for euro zone countries by 2013 by cutting government jobs, freezing civil servants' pay and curbing other spending.
In addition, Portugal's public debt is expected to climb to 85.4 percent of GDP this year, up from 76.6 per cent in 2009, as the government invests in the economy and increases welfare payouts amid rising unemployment.
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