True Finns leader Timo Soini said his party had pulled out of those talks after other parties reached a deal on Wednesday to support Portugal’s rescue bailout, with some conditions.

A Finnish euroskeptic party pulled out of coalition talks on Thursday, refusing to be part of a government that backs bailouts to Portugal and other cash—strapped European countries.

Strong gains by the True Finns party in April 17 elections forced Finland’s major parties to include it in talks on forming a new government, and raised doubts in the 17—nation eurozone about the Nordic country’s backing for a rescue package being put together for Portugal.

True Finns leader Timo Soini said his party had pulled out of those talks after other parties reached a deal on Wednesday to support Portugal’s rescue bailout, with some conditions.

Mr. Soini described the bailout as “no good,” and said his party would not back “mechanisms that don’t function,” including other eurozone plans for aid to troubled members.

“It means we won’t participate in government formation talks that advance the Portugal bailout ... and take the European Union in the direction of a federal union,” Mr. Soini said. “It would have been nice to be in the government. It was a tough decision.”

The European Union on Thursday welcomed the deal reached by the major parties.

“The Commission welcomes the agreement reached in Finland to support the decision on the programme of economic adjustment for Portugal,” said Amadeu Altafaj Tadio, spokesman for Monetary Affairs Commissioner Olli Rehn. “It is a responsible decision that will contribute to safeguard financial stability in Europe and in Finland.”

Jan Sundberg, professor of political sciences at the University of Helsinki, described the withdrawal of the True Finns as “a relief” for Europe and Finnish government talks.

“This is good news for Europe. It was already a relief when the conservatives and Social Democrats agreed on the bailout terms. Now, it’s even more so as the True Finns have pulled out of government talks,” Prof. Sundberg said.

The True Finns’ decision made it increasingly likely that the new coalition government would consist of the conservative National Coalition Party, which won the election, and centre—left Social Democrats that came in second.

Finance Minister Jyrki Katainen, as head of the largest party, was tasked with forming the next majority government. He began talks with the three largest parties, but said that any new coalition must stand firmly behind Portugal’s bailout and other aid to troubled eurozone members.

“Now that the main opposition force to bailouts is out of the running it will make Mr. Katainen’s job easier,” Prof. Sundberg said. “The government parties—to—be shouldn’t find it difficult to agree on compromises in a country that has a decades—old tradition of consensus politics.”

Several smaller parties have supported eurozone bailouts and said they would be prepared to enter government talks, if asked.

Mr. Katainen has said he will announce later this week which parties he will include in official government talks, scheduled to begin on May 18.

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