All five opposition parties voted Wednesday against his Socialist government's fourth cost-cutting plan in a year aimed at avoiding a multi-billion euro financial bailout like those given to Greece and Ireland.
The political drama threatened to derail a two-day summit that gets under way in Brussels today which is expected to finalise the bloc's response to a year-long eurozone debt crisis.
It also will increase borrowing costs for the Portuguese government as it faces bond replayments amounting to nine billion euro (USD 12.9 billion) falling due by June 15, boosting the probability that Lisbon will seek a bailout.
"The opposition removed from the government the conditions to govern. As a result I have presented my resignation to the president," Socrates said after a 20-minute meeting with President Anibal Cavaco Silva.
"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 eurozone debt crisis.
At around 9:00 pm (2100 GMT), shortly after Socrates' resignation announcement, the single currency traded at USD 1.4083, down from USD 1.4196 at the same time Tuesday.
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