EU would support Irish 'if needed'

Image caption,
The Irish Republic faced one of the deepest recessions in the eurozone

The President of the European Commission, Jose Manuel Barroso, has said the EU would support the Irish Republic "if needed", after the yield on government bonds hit record highs.

This reflects growing fear among investors about the Irish government's ability to cut its debt levels.

Irish Finance Minister Brian Lenihan welcomed Mr Barroso's comments.

Earlier this week, the EU's economy commissioner said he had not discussed possible financial help with the Irish.

Olli Rehn said confidence in the Irish economy would be restored once the country published a four-year plan to cut debts.

However, the yield on government bonds has continued to rise.

On Thursday, Irish 10-year government bond yields jumped to 8.929%, the highest level since the creation of the euro in 1999.

And Italy and Spain were among the countries seeing their cost of borrowing jump as fears grew of contagion in Europe.

Record highs

Mr Barroso said: "In case of need, the EU is ready to support Ireland. We are monitoring the situation closely, but we support the efforts of the Irish authorities [to reduce the budget deficit]."

Mr Lenihan said the comments highlighted the "solidarity" within the EU.

The Irish government has already imposed stringent cuts on civil service pay and state spending, and plans to unveil details of a further 15bn euros ($21bn; £13bn) of cuts on 7 December.

They will include a further 6bn euros of cuts next year, designed to bring the budget deficit down to between 9.5-9.75% fo GDP.

The government's deficit surged during the recession after it was forced to bail out the country's banking system.

The recent rise in the interest rate Irish government bonds pay out, which hit record highs this week, suggest investors doubt whether these cuts will be enough to put the Irish economy, which suffered one the deepest recessions in the eurozone, back on track.

"This makes it increasingly likely that the Irish Republic will have to be bailed out by the EU and the International Monetary Fund, just as Greece was earlier this year," said the BBC's Europe correspondent Jonty Bloom.

A number of European governments have announced wide-ranging spending cuts to reduce debt levels, most notably Greece, Portugal, Spain and the UK.

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