Left-wing parties look set to oust Portugal's minority centre-right government as part of a drive to set up their own Socialist-led administration and end to years of harsh austerity. As Sonia Legg reports, the prospect has rattled investors and threatens to derail the country's fragile economic recovery.
It's a picture postcard country and it has been a poster-child for the euro zone. But Portugal's recent election has created an uncertainty that's rattling investors, and sending bond yields higher. The government lost its majority last month as voters rejected the austerity imposed in return for an international bailout. Left-wing parties have been circling ever since - and could be about to vote down the government. But Prime Minister Pedro Passos Coelho says the country can't afford to abandon reforms. (SOUNDBITE) (Portuguese) PORTUGUESE PRIME MINISTER, PEDRO PASSOS COELHO, SAYING, "I will not collaborate and will oppose any negative policy leading to Portugal's ruin, where the Portuguese (people) are seen as mere instruments of political power games." Coelho's opponents want to return disposable income to households, overturning some wage cuts imposed by the centre-right government. They argue economic growth would do more than austerity to help reduce the budget deficit. It's a familiar argument - Greece has been having that debate for months. Adrian Schmidt is from IdeaGlobal. (SOUNDBITE) (English) Adrian Schmidt, Senior Policy Economist/FX Strategist, IDEAGlobal, saying: "I think we are at the stage when most of the austerity that needs to be done has been done and further austerity is probably counter productive." That's not the message euro zone finance ministers are giving to Greece at the moment. They've been reminded there's no more bailout money without reform. Greeks aren't impressed - a general strike will take place on Thursday. Many say new economic forecasts back up their argument. Three key organisations, including the European Commission, say Greece will head back into recession this year and next after clawing its way out of a six-year depression last year .