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European Commission president Jose Manuel Barroso urged Portugal on Wednesday to clarify its political crisis "as soon as possible", to avoid jeopardising the nation's economic credibility.
Barroso said in a statemant that the Commission, the European Union executive, was following the political crisis in Portugal "with very serious concern."
He said: "The initial reaction of the markets shows the obvious risk that the financial credibility recently built up by Portugal could be jeopardised by the current political instability."
He warned: "If this happens it would be especially damaging for the Portuguese people, particularly as there were already preliminary signs of economic recovery."
The country's 10-year borrowing rates earlier surged to dangerous levels of 8.0 percent following the resignation the previous day of Foreign Minister Paulo Portas, who heads a small party in the centre-right coalition.
"This delicate situation requires a great sense of responsibility from all political forces and leaders," Barroso said.
"The political situation should be clarified as soon as possible," he warned
Prime Minister Pedro Passos Coelho has refused to accept the minister's resignation in an attempt to hold the coalition together, after his Finance Minister Vitor Gaspar, the architect of drastic austerity policies, resigned on Monday.
"We trust that Portuguese democracy will deliver a solution ensuring that the sacrifices the Portuguese people have made until now will not have been in vain," Barroso concluded.