UPDATE 1-Portugal parliament rejects teacher pay rises, avoids PM resignation

Portugal's parliament rejected on Friday proposed retroactive pay hikes for teachers, quelling the prospects of a political crisis following last week's threat by the government to resign if the measure was approved. Public sector wages were frozen during Portugal's 2011-14 debt crisis and the government is concerned that big increases for one sector would prompt a flood of demands by all civil servants undermining its efforts to balance the budget.

On May 2, the two conservative parties in parliament joined forces with the far left in a committee to approve pay raises for teachers that had been held back over nine years. They have since backtracked, submitting separate motions specifying pay rises only if public finances can sustain them, and accused Prime Minister Antonio Costa of creating an artificial crisis in what they said was politicking before the country's general election in October.

The government has already budgeted this year for pay increases accounting for just under three years of withheld rises, and has said any further concessions would be unfair and destabilising. "Our stability is expressed in sound public accounts over the whole legislature that allowed to recover worker incomes and rights," Socialist lawmaker Porfirio Silva said before the vote.

The Socialists have won praise from investors for reducing the budget deficit to nearly zero while combining economic growth with the reversal of various austerity measures imposed during the debt crisis. The dispute may have played into Costa's hands by reinforcing the image of fiscal responsibility. Still, it could reinforce a recent wave of strikes and protests from teachers, nurses, police and prison guards to press demands for pay increases and better working conditions. Unions have called a protest rally near parliament later on Friday. 

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