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Portugal PM brushes off no confidence motion, reaffirms course

By Andrei Khalip

LISBON (Reuters) - Portugal's government dismissed as "unrealistic and lacking substance" a no-confidence motion fielded by the main opposition party, vowing to stick to budget consolidation policies despite growing resistance to austerity.

The government can easily defeat the motion in parliament, where it has a solid majority, making it largely a symbolic move that formalizes the Socialists' change of tack over the past few months towards austerity dictated by an international bailout.

The center-right coalition government, that has been praised by Brussels for its austerity and structural reforms, has previously defeated three such motions filed by smaller left-wing parties.

The previous Socialist government requested the EU/IMF bailout in April 2011. It had been supportive of the bailout goals until a few months ago, but a worsening economic outlook has turned the Socialists against any further austerity.

Painful tax hikes and spending cuts dictated by the EU/IMF bailout have stoked the worst recession since the 1970s. Public protests against austerity have grown in the past few weeks.

"It is our rupture with the government due to the social and economic tragedy in the country, due to erroneous policies and the government's insistence on carrying them out," said Jose Vera Jardim, a spokesman for the Socialists' Political Commission that had voted unanimously in support of the motion.

But Prime Minister Pedro Passos Coelho told parliament during a debate the motion "lacks substance" and will not make the government change its course.

"Those who think that this government will give up at the first signs of difficulties, that it will shy away from difficulties, you can lose your illusions," he said. "The main thing we have to do is to meet the goals of the bailout program," he said.

Last week, Lisbon's lenders eased its budget goals and gave it more time to make unpopular spending cuts due to a worsening economic outlook. Gross domestic product is expected to drop 2.3 percent this year after last year's 3.2 percent fall.

Socialist leader Antonio Jose Seguro said the government had "failed on all fronts" as its initial forecasts of economic growth this year were replaced with ever-worsening predictions of a new slump.

Despite the continuing budget consolidation effort, the government has said it is preparing tax incentives for companies to support industry.

Portugal is trying to regain full access to the debt market this year in order to exit the bailout program by mid-2014. It successfully issued five-year debt in January in its first bond issuance since the bailout and its debt yields have fallen sharply since last year.

Luis Montenegro, bench leader for the main ruling Social Democrats, said the motion will be "roundly rejected".

"Enough of so much unrealism, of political tactics, enough of playing around with the Portuguese," he told the Socialists.

Political analysts say the motion does not present serious risks to the government, but combined with a possible rejection of some austerity measures by the Constitutional Court, it could contribute to destabilizing the administration.

Weekly newspaper Sol said on Friday the court could reject up to 1 billion euros ($1.29 billion) worth of special levies and holiday subsidy cuts that went into force from January, out of around 5 billion euros in this year's austerity measures, blowing a hole in 2013 public accounts.

Sol said the decision is likely in about two weeks. The government has said it expects the court to approve its measures and does not have any concrete contingency plans. ($1 = 0.7737 euros)

(Reporting By Andrei Khalip; Editing by Toby Chopra)

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