Portuguese President Cavaco Silva on Thursday accepted the resignation of Prime Minister Jose Socrates and called fresh elections for June 5th.
Socrates resigned last week after opposition lawmakers rejected his Socialist government’s deficit-cutting plan.
The political impasse has spooked financial markets amid fears Portugal will be the next eurozone country to seek a bailout.
Portuguese bond yields, or borrowing costs, are at their highest in the single currency’s history.
Socrates had proposed closing tax loopholes and cutting back on pensions to close a public deficit that stood at 8.6 percent of GDP last year.
The country’s interim government admitted on Thursday that it had missed its 2010 target of 7.3 percent.
Portugal's president accepts PM's resignation