Portuguese President Anibal Cavaco Silva approved a reshuffled ruling coalition Wednesday, ending a 10-day crisis over hated austerity policies that nearly toppled the government.
"The current government has all the authority to exercise its functions," the president said in a televised address to the nation, rejecting opposition calls for immediate elections.
The decision means the survival, for now, of Prime Minister Pedro Passos Coelho's centre-right government, after a political emergency that shook world markets fearing a new wave of instability in the eurozone's debt-laden periphery.
The president nevertheless called on political parties that support Portugal's 78-billion-euro ($100-billion) international bailout programme to agree on a timetable for early elections to be held after it expires in June 2014.
At the heart of the crisis is a dispute over the painful spending cuts and tax increases enacted as a condition of the bailout, which was agreed with the troika of the European Commission, European Central Bank and IMF in May 2011.
The financial rescue programme was negotiated by the Socialist Party when it was in power but has been implemented by the centre-right coalition, which won snap elections in June 2011.
The austerity measures are widely blamed for exacerbating Portugal's three-year recession, however, and the resulting hardship has sparked growing street protests.
Portugal forecasts a 2.3-percent economic contraction this year and has a record unemployment rate of more than 18 percent.
The outlook for the austerity squeeze is now unclear under the new-look alliance between Passos Coelho's Socialist Democratic Party and its junior partner, the conservative CDS-PP.
In the midst of such uncertainty, officials of Portugal's troika of creditors are due to visit the country Monday to assess its accounts.
The crisis erupted July 1 with the shock resignation of then finance minister Vitor Gaspar, who was feeling the pressure of mounting popular opposition.
It escalated the next day when Paulo Portas, who as leader of the CDS-PP coalition partner is pivotal to the government's survival, said he was resigning as foreign minister.
Portas was angered by the choice of then treasury secretary Maria Luis Albuquerque as the new finance minister, fearing she would pursue the very austerity policies that he wants to relax.
But after long negotiations, Passos Coelho patched up a deal Saturday to keep intact a coalition that has ruled since June 2011, agreeing to promote Portas to the post of deputy prime minister in charge of coordinating economic reforms.
Albuquerque, whose appointment as finance miniser has been welcomed by top European officials, said this week she can work with Portas.
Despite backing the existing government, the president said there was an "urgent" need for a medium term accord between parties that support the bailout programme so as to avoid sliding back into political crisis.
Some financial analysts foresee a new bailout for Portugal.
The president himself warned last week that external events or domestic instability could block Portugal's return to borrowing from the financial markets when its bailout programme expires.