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Portugal ruling party vows to meet bailout goals after pact talks fail

A political activist paints the word "Lisbon" on a wall at a street in Lisbon July 20, 2013. REUTERS/Jose Manuel Ribeiro
A political activist paints the word "Lisbon" on a wall at a street in Lisbon July 20, 2013. REUTERS/Jose Manuel Ribeiro

By Andrei Khalip

LISBON (Reuters) - Portugal's ruling Social Democrats (PSD) said on Saturday their coalition government would press on with meeting the country's economic bailout goals after talks on a broader political deal sought by the president collapsed.

Reigniting a three-week-old political crisis, the two centre-right coalition parties and main opposition Socialists broke off talks on Friday on a "national salvation" pact to ensure an EU/IMF bailout stays on track, leaving it to the president to decide how to proceed.

President Anibal Cavaco Silva will make a televised statement on Sunday at 8:30 p.m. (1930 GMT), the president's office said. It would not provide any details.

"We consider there are conditions of stability and cohesion in the coalition, that there are conditions for us to be able to fulfill the memorandum of understanding and lay the basis for sustainable growth and conditions for greater social justice," PSD vice-president Jorge Moreira da Silva told reporters.

"We lament the result of this dialogue process, but the Portuguese people know they can keep counting on us," he said, adding that his party awaited the president's evaluation "with serenity and confidence".

Political turmoil has already forced Lisbon to request a delay in the eighth review of the bailout by its creditors, originally scheduled to start last Monday, until the end of August or early September.

The 78-billion-euro ($102.5-billion) bailout program and accompanying austerity policies are associated with the worst recession in Portugal since the 1970s.

The centre-left Socialists said the ruling coalition had rejected most of their proposals aimed at ending the austerity policies and renegotiating the terms of the bailout.

The government says abandoning austerity would undermine Lisbon's credibility with lenders and investors.

The crisis, which started as an internal political rift in the ruling coalition and expanded to a debate over the rescue plan and a possible early election next year, has threatened to derail Portugal's planned exit from the bailout and full return to debt markets in mid-2014.

Analysts say the situation remains very uncertain but the president could still avoid an escalation of the crisis, and a likely blowout in Portugal's debt risk premiums, by keeping the ruling coalition in place rather than using his power to dissolve parliament and call a snap election.

He last week declined to say what the alternatives were if there was no cross-party pact.

The government easily defeated a parliamentary no-confidence motion on Thursday and said this had confirmed its legitimacy to govern.

(Editing by Sonya Hepinstall)

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