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Portugal's politicians are bitterly divided over a new round of public sector cuts, making a eurozone rescue look more likely.

Marina Costa Lobo, a social sciences research fellow at the University of Lisbon, explains how political squabbling has jeopardised Portugal's international credibility.

The government fell this week because no relevant political actor was sufficiently interested in supporting it.

Short-term calculations of political interest, against a background of long-term economic austerity and citizens' frustration with the government, precipitated the fall.

The government of Socialist Prime Minister Jose Socrates has been battling to maintain the country's international credibility in the face of market doubts about its solvency.

Mr Socrates was hoping that conditions for Portugal's borrowing would become more favourable. But now the country has little to show for its efforts to adopt austerity measures.

On Wednesday the government tendered its resignation after the whole parliamentary opposition rejected its latest austerity package.

Mr Socrates said the crisis would have "very serious consequences in terms of the confidence Portugal needs to enjoy with institutions and financial markets".

Protests

The latest austerity package was indeed severe.

It included cuts of up to 10% in all state pensions above 1,500 euros a month, further tax rises, cuts in spending on infrastructure and healthcare, and measures to liberalise the labour market and rented housing sector.

The measures were announced by the finance minister at a press conference in Brussels, without any negotiations with parliamentary parties or prior notice to the head of state.

The manner of the announcement drew condemnation from both President Cavaco Silva and Passos Coelho, leader of the main opposition party, the centre-right Social Democratic Party (PSD).

Immediately, Passos Coelho announced that his party would no longer support the government, nor the austerity package.

Elected in September 2009 with 37% of the votes, Mr Socrates had to form a minority government.

That meant a broad coalition in parliament was needed to implement unpopular austerity measures.

Previously consensus was reached over the budget and the stability and growth pact. On each occasion, the president mediated to secure deals between the two major parties in the national interest.

Vying for popularity

Now it seems that all involved put party politics before economic priorities in the latest effort to tackle Portugal's debts.

The prime minister, whether through arrogance or willfulness, went beyond the constraints of a minority government.

The PSD, having behaved responsibly until now, was probably concerned that its support for the government would hurt its electoral chances in future.

And the president, who had won a second mandate in a tough battle against the Socialist-backed candidate, decided to abandon his previous institutional co-operation with the government.

Amid all these political calculations there was increasing uncertainty that the government's measures would be effective in averting a deepening of the economic crisis or a bail-out.

Sluggish economy

Portugal has suffered from weak growth since 2001, with unemployment rising and economic activity declining.

So its problems differ from those of the Irish Republic, which had to resort to a bail-out because of its banks' excessive bad debts, or Greece, whose bail-out came after serious under-reporting of its budget deficit.

A relative upturn in Portugal's economy in 2006-7 was quickly erased by the financial crisis in 2008.

Since then Prime Minister Socrates has been slow to implement the necessary spending cuts to avert the worst.

There was no talk of the need to roll back the state until Mr Socrates' Socialist Party had safely won the 2009 elections.

So he has been blamed by the opposition for not implementing austerity measures which could have put Portugal's finances into better shape than now.

Support for the Socrates government has started to drop in the opinion polls.

Recently some 200,000 demonstrators rallied in Lisbon against declining living standards, as high youth unemployment casts a dark shadow over the future for many.

Short-term calculations have precipitated the fall of an unpopular government at a very difficult time for the country.