European central bankers signalled on Monday they stood ready to raise interest rates next month despite uncertainty linked to Japan's nuclear crisis and the ongoing struggles of euro members Greece, Ireland and Portugal.
Ahead of a European summit this week where the bloc's leaders are expected to agree a package of measures to combat their debt crisis, EU sources told Reuters that Ireland may need more than the 35 billion euros earmarked in its EU/IMF rescue last year to recapitalise its ailing banks.
Meanwhile, Portugal's government warned it could step down if opposition parties block new spending cuts in a parliamentary vote expected on Wednesday. That would ratchet up pressure on the country to follow in the path of Greece and Ireland and seek a bailout from the European Union and International Monetary Fund.
Despite that risk, investors have pushed up the bonds of countries on Europe's vulnerable southern periphery in recent days, confident EU leaders will sign off on a range of measures that will help prevent the crisis spreading beyond Portugal. The risk premium markets demand to hold Spanish 10-year debt instead of German benchmarks has fallen to its lowest level since early February, and the euro is hovering above $1.41 for the first time in over four months.
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