Prime Minister Jose Socrates of Portugal has resigned after parliament rejected an austerity budget.
The defeat late on Wednesday is likely to trigger a bailout similar to the rescue packages Greece and the Republic of Ireland had to accept last year.
All five opposition parties voted against the austerity measures, which included spending cuts and tax rises.
Mr Socrates had earlier said he would no longer be able to run the country if the budget was not adopted.
Opposition parties said the budget - the fourth package of austerity measures in a year - went too far.
Borrowing costs have surged as investors worried over its financial health.
Lisbon has argued its situation is different from Greece and the Irish Republic - both of which have agreed to bail-outs from the European Union and International Monetary Fund.
It says that its deficit and debt are lower than those nations, that it has not suffered a bubble in property prices and that its banks are sound.
Before the vote took place, the yield on Portugal's 10-year bond hit a new high of 7.52% in late trading.