Crucial budget talks between Portugal’s Socialist government and the main opposition party have broken down without a deal.
The two sides cannot agree on how to cut the country’s massive deficit.
There is now the risk of a political and financial crisis in one of the euro zone’s weakest members.
Prime Minister Jose Socrates does not have a majority in parliament and so needs the opposition PSD party’s support.
The PSD wants more spending cuts the government prefers an approach that includes tax hikes.
The PSD’s chief negotiator Eduardo Catroga said: “I consider, as I’ve said before to the government, that my negotiating mission, from a technical point of view, no longer makes sense, because of the government’s inflexible position.”
Finance Minister Fernando Teixeira dos Santos responded: “There are some who accuse the government of being inflexible. Yes, I am inflexible. The budget deficit has to be at 4.6% next year and we have to stick to that target.”
To try to resolve the crisis Portugal’s President Cavaco Silva said he would hold a meeting on Friday of the state council – a group of current and former top politicians who offer him advice on key political matters.
Unless the president can find a way out of the impasse, Portugal’s government may fall, which would lead to its credit rating being cut making it even more difficult for the government to borrow.