European policymakers have sought to reassure markets about the stability of the euro zone as investors shed euro assets for a second day and Portugal backed a law that may push its swollen deficit higher.
European Central Bank Governing Council member Ewald Nowotny tried to play down a sharp fall in the euro, which hit its lowest level against the dollar since May 2009, and described rumours of a dissolution of the euro as 'absurd'.
Greek Prime Minister George Papandreou, on a visit to India, promised to 'credibly apply' an austerity programme designed to bring his country's yawning debt and deficit under control.
But worries about Portugal mounted after its opposition-led parliament defied the socialist government and approved a bill on regional finances that could complicate the country's budget consolidation drive.
Greece, Portugal and other bloc members with swollen deficits like Spain face intense pressure to get their public finances in order and calm markets worried about the risks of a sovereign default.
In the deepest crisis in the zone's 11-year history, analysts are no longer discounting the possibility that a smaller member such as Greece could be pushed out, though most believe monetary union will survive.
'The market is closely watching each country's ability to pay its debts,' said Erkki Liikanen, who sits on the ECB council with Nowotny. 'If the faith is lost, rates will go up significantly.'
