Portugal's minority government and main opposition party have struck a deal on a package of austerity measures aimed at steering the country out of a financial crisis that has contributed to investor unease about the soundness of the euro.
Portugal, like other eurozone countries Greece, Ireland and Spain, needs to slash a high debt load that is threatening to ruin its economy and could further weaken prospects for a European economic recovery.
The centre-left Socialist government drew up plans to increase taxes and curb spending next year but did not have enough votes in parliament to win approval for its proposals.
But the deal with the centre-right Social Democratic Party ensured the plan would be enacted after a parliamentary vote next week on the government's spending plans for 2011.
The Social Democrats said the deal "mitigated the most negative consequences" of the 2011 state budget.
The government, it said, agreed to review major public works projects planned in partnership with private companies. Those projects, it said, would drive up the national debt.
Portugal is the latest of the 16 nations using the euro currency to adopt austerity measures amid continent-wide economic woes. Rising interest rates on government bonds and growing unemployment, currently more than 10%, have accelerated the drain on Portugal's public finances.
Portugal's budget deficit - the amount it spent more than it received - stood at 9.3% of gross domestic product last year. That was the fourth-highest deficit in the eurozone and alarmed international investors already doubting the fiscal health of eurozone nations.
The government hopes to cut the budget deficit to 4.6% next year with the austerity package, which includes an average 5% cut in public sector pay and a sales tax hike to 23% from 21%.
The austerity plan has also brought a public outcry, and trade unions have called a general strike for November 24. The plan is expected to hurt economic growth, with several national and international agencies forecasting a recession in Portugal next year.