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Lisbon - Portuguese President Anibal Cavaco Silva on Wednesday took steps to settle a political crisis that threatened to topple the government, after two ministers resigned over austerity policies agreed with the European Union and the International Monetary Fund.
Cavaco Silva was to meet Prime Minister Pedro Passos Coelho and party representatives on Thursday, the president's office announced.
Before that, the president was scheduled to meet Socialist opposition leader Antonio Jose Seguro.
Cavaco Silva was coming under growing pressure to dissolve parliament and to call early elections after the resignations of the finance minister, Vitor Gaspar, and the foreign minister, Paulo Portas, brought the government to the verge of collapse this week.
Hundreds of demonstrators gathered to demand that Passos Coelho step down. The main trade union confederation, CGTP, has announced a rally for Saturday to demand early elections.
Passos Coelho said Tuesday he would not accept the resignation of Portas, but would try to reach an agreement with the party the foreign minister heads, the conservative-nationalist CDS-PP.
The party is the junior coalition partner of Passos Coelho's Social Democratic Party (PSD). If other ministers belonging to the CDS-PP follow the example of Portas and resign, Passos Coelho will lose his absolute majority in parliament.
That would make it difficult for him to complete the €78bn bailout programme agreed with the EU and the IMF in 2011.
The government crisis has made stock markets plunge, while the yields for Portuguese bonds has gone up.
European Commission President Jose Manuel Barroso has warned that "the financial credibility recently built up by Portugal could be jeopardized by the current political instability."
Gaspar, who was the main architect of the austerity policies applied under the bailout programme, justified his resignation by saying he had failed to meet budget deficit targets. He also cited widespread opposition to his spending cuts.
Portas said he was stepping down over the choice of Maria Luis Albuquerque as Gaspar's successor.
The CDS-PP wants to soften the government's austerity policies, while Albuquerque is known as a staunch supporter of Gaspar's budget crackdown.
Spending cuts and economic reforms have helped Portugal reduce borrowing costs and the budget deficit, which went down to 6.4% of gross domestic product in 2012, from 10.1% in 2010.
But the economy has been in recession for two years and is expected to shrink by 2.3% this year. Unemployment has climbed to nearly 18%.
The EU is confident that Portugal can weather its political crisis, an official said in Brussels.
"It's obvious that it would have been our strong preference if the stability of the government had been maintained," the EU official said, speaking on condition of anonymity.
"But I'm quite relaxed ... Portugal is well-financed. I have no concerns whatsoever for the whole of 2013."
Germany stressed the need for Portugal to adhere to the course of austerity. "The German government is confident that Portugal will stick to the agreed reforms," spokesperson Steffen Seibert said in Berlin.
Eurozone finance ministers are expected to discuss the Portuguese situation when they next meet on Monday in Brussels.
Experts from the European Commission, the European Central Bank and the IMF are then scheduled to launch a review mission to examine the country's economic progress and pave the way for the next stage of its bailout.
The EU official noted that the process would be more difficult if the Portuguese government announced new elections.
