The opposition Socialists demanded a renegotiation of Portugal’s bailout terms yesterday, raising a hurdle to a cross-party pact the President says is needed to end the euro zone country’s dependence on international funding next year.

Prime Minister Pedro Passos Coelho and Socialist leader Antonio Jose Seguro said they are ready to discuss a deal, but analysts say their divergence on painful austerity policies linked to the bailout could make it hard to resolve the crisis.

“We have to abandon austerity politics. We have to renegotiate the terms of our adjustment programme,” Seguro told Parliament. “The Prime Minister has to recognise publicly that his austerity policies have failed.”

The political turmoil has already forced Lisbon to request a delay in the eighth review of the bailout by its creditors, initially due to start on Monday, until the end of August or early September.

The delay drove up yields on Portuguese government bonds, which move inversely with prices, with 10-year yields surging 90 basis points on Friday to 7.87 per cent.

President Anibal Cavaco Silva threw the country into disarray this week by rejecting the premier’s bid to heal a rift in the ruling coalition via a Cabinet reshuffle, calling for a cross-party agreement to last until the end of the bailout programme in June 2014, to be followed by early elections.

The Socialists have blamed the government’s austerity drive under the bailout for pushing Portugal into its biggest economic slump since the 1970s and unemployment to record levels of around 18 per cent.

“More time is something which we have always fought for. More time so our adjustment curve is not so steep and we can relieve sacrifices families and businesses have to make,” Seguro said.

The Socialists had lobbied Cavaco Silva to call a snap election immediately, a move which the President rejected, saying it would significantly increase the risk of Portugal being forced to request a second bailout.