Lisbon and Madrid as well as the EU Commission have strongly rejected reports that the two countries need an international bailout. It comes as Portugal announced austerity measures to bring down its budget deficit.
Many believe Portugal will have to ask for an EU bailout
Despite frantic denials from Lisbon and Madrid that Spain and Portugal do not need EU bailout funds, investors remain nervous, pushing up borrowing costs for Spanish and Portuguese bonds on Friday.
The EU Commission also dismissed as "absolutely false" a press report that some eurozone states were pressuring Lisbon to tap into the EU's rescue funds. A German government spokeswoman has also rejected the report. "We are not putting on any pressure," she said in a statement.
Portugal's parliament, meanwhile, passed its 2011 budget, which aims to reduce the country's deficit from a projected 7.3 percent this year to 4.6 percent in 2011. Lisbon plans to cut public sector wages, raise sales and other taxes and curb public spending.
Spain has already passed its austerity budget and Prime Minister Jose Luis Rodriguez Zapatero "absolutely" ruled out tapping into EU funds.
Public sector workers went on strike against the proposed cuts
Markets remain jittery
Those efforts not withstanding, borrowing costs rose once again for Ireland, Portugal and Spain, as markets demand a higher premium for those countries for holding their debt.
Banking shares were also hit across Europe on Friday, as fears persisted of contagion from Ireland's financial sector crisis. A Reuters poll this week showed that 34 out of 50 analysts expect Portugal to ask for bailout funds.
The European Union and the International Monetary Fund have set aside emergency funds worth 750 billion euros. Ireland is expected to tap into that fund to the tune of 85 billion euros, in a deal that could be agreed as early as next week.
Some experts, like the governor of the Bundesbank, the German central bank, believe the rescue fund needs to be topped up to 1.5 trillion. Axel Weber, also a member of the European Central Bank, said this week that "if that [the 750 billion euros] is not enough, I'm convinced eurozone states will do what is necessary to protect the euro."
German Finance Minister Wolfgang Schaeuble, however, has dismissed his comments. "I don't think that's necessary at all," he said on Friday.
Author: Nicole Goebel (Reuters, dpa)
Editor: Chuck Penfold