Lisbon: In an enraged step, Portuguese Prime Minister Jose Socrates resigned after his new austerity plan was rejected by the Parliament.

With a meeting with President Anibal Cavaco Silva, Socrates said, "The opposition removed from the government the conditions to govern. As a result I have presented my resignation to the president.”

All five opposition parties on Wednesday voted against the fourth cost-cutting plan in a year aimed at avoiding a multi-billion euro financial bailout.

The PM’s resignation came on the eve of a key EU summit on the euro zone debt crisis. The political drama threatened to derail a two-day summit that gets under way in Brussels on Thursday which is expected to finalise the bloc's response to a year-long euro zone debt crisis.

The austerity plan by the Socialist government under the rule of Socrates has chances of seeking a bailout for Lisbon.

He said further, "This crisis will have very serious consequences in terms of the confidence Portugal needs to enjoy with institutions and financial markets."
The euro fell sharply against the dollar on Wednesday due to market fears that events in Portugal would undercut the EU summit and stoke the year-long euro zone debt crisis.