Finance Minister Vitor Gaspar, the architect of Portugal's austerity drive under an EU/IMF bailout, resigned yesterday evening in a potential blow to its planned exit from the rescue programme.
Gaspar has been widely blamed by the Portuguese for the painful tax hikes and wage cuts since the mid-2011 deal.
He said in his resignation letter he quit because of the growing erosion of public support for the adjustment plan.
His departure marks the biggest political casualty from the country's debt crisis since the previous Socialist government collapsed in the spring of 2011 after it was forced to request the bailout.
The centre-right Social Democrats have governed since then in a coalition with the rightist CDS. Gaspar will be replaced by Treasury Secretary Maria Luis de Albuquerque, who helped engineer Portugal's still fledgling return to bond markets earlier this year.
Lisbon hopes to regain full market access by the middle of 2014 when the bailout ends. Failure to do so may require a new rescue package and yet more austerity.
Portugal entered its third year of recession in 2013 under the weight of deeply unpopular austerity which has undermined salaries, cut into welfare benefits and raised taxes sharply. Unemployment is at record highs of nearly 18%.
"The risks and challenges in coming times are enormous," Gaspar said in the letter addressed to the prime minister. "They demand cohesion in government. It is my firm conviction that my departure will contribute to reinforce your leadership and the cohesion of the government,'' he wrote.
Gaspar, a politically independent technocrat, had faced periodic criticism from the junior partner in the ruling coalition, including over the biggest tax hikes in living memory that were launched this year to meet the goals of the €78 billion bailout.
His departure comes shortly before the July 15 start of the next bailout review by Lisbon's lenders, the European Union and IMF.
EU Economic and Monetary Affairs Commissioner Olli Rehn said he was confident Albuquerque would show "similar commitment and determination" to Gaspar.
Rehn, the top EU economic official, said in a statement that it was essential to maintain the pace of reform, but that he had no doubt Albuquerque would "ensure a seamless transition".
At the last review of Portugal by creditors, the country won an easing of tough budget goals and Prime Minister Pedro Passos Coelho has suggested he may request a fresh relaxation for next year if the economic outlook worsens.