Portuguese minister says that Portugal could be forced out of Eurozone. Crisis worsens.

A large euro sign installation is seen in front of the European Central bank (ECB) headquarters prior to the monthly news conference of ECB President Jean-Claude Trichet in Frankfurt, November 4, 2010.

Credit: Reuters/Kai Pfaffenbach

LISBON | Sat Nov 13, 2010 1:24pm GMT

LISBON (Reuters) – Failure to adopt a broad coalition government to deal with the financial crisis could result in Portugal being forced to abandon the euro currency, its foreign minister said in an interview published on Saturday.

The opposition and government must come together to deal with an “extreme situation,” Luis Amado told the weekly Expresso.

Portugal saw a sharp loss of investor confidence in the past few weeks as concerns over fellow euro zone weakling Ireland intensified over its budget, pushing Portugal’s risk premiums to their highest levels since it adopted the euro.

“The country needs a grand coalition that allows it to get through the current situation,” Amado told the weekly.

“I believe that the (political) parties understand that the alternative to the situation we confront is eventually leaving the euro,” he said. “That is a situation that could inevitably be forced on us by markets to consider.”

Much of the concern over Portugal’s efforts to cut its budget deficit in the past few weeks came from doubts over whether the opposition Social Democrats would support the austere 2011 budget in parliament.

The Socialist government rules without a majority in parliament and needs support from the opposition to pass legislation.

The Socialists and Social Democrats finally reached an agreement leading to approval of the 2011 budget at its first reading in parliament this month, but investors are watching closely until the final vote on November 24.

Analysts have said they doubt the Socialists will last through their term which ends in 2013, especially now that the Social Democrats lead in opinion polls, but under Portugal’s constitution snap elections cannot be held before May.

(Reporting by Axel Bugge; Editing by Peter Graff)