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Submitted by unname1 on Fri, 03/25/2011 - 10:18
EU leaders are grappling with a new eurozone threat after Portugal's parliament rejected an austerity budget and PM Jose Socrates resigned.

The vote means an international bail-out, similar to those accepted by Greece and the Irish Republic last year, is now far more likely.

Mr Socrates said opposition parties had "removed from the government the conditions to govern".

The EU summit in Brussels is aimed at tackling the eurozone debt crisis. The summit has been billed as the moment the 27 EU member states adopt a “comprehenstive package” on stabilising the eurozone.

As part of the deal, the lending capacity of the European Financial Stability Facility (EFSF) would be raised from EUR250billion to EUR440billion. The EFSF is due to be replaced by a permanent European Stability Mechanism in 2013.

But EU governments have not yet nailed down their national contributions to the augmented EFSF and Portugal's uncertain politics makes unanimity more difficult.

Pressure on Portugal's economy intensified on Thursday as the interest rate on the country's 10-year bonds climbed to a new high of 7.6 percent.

Portugal faces bond repayments of 4.3bn euros on 15 April and, in a national address on Wednesday night, Mr Socrates warned that the political crisis would have "very serious consequences in terms of the confidence Portugal needs to enjoy with institutions and financial markets".

BBC/VOVNews

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