Lenihan welcomes EU support over bonds issue

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

Irish finance minister Brian Lenihan, has welcomed the support given by leading EU countries as the Irish Republic tries to calm fears over the cost of its borrowing.

This rose on international markets this week after German Chancellor Angela Merkel said taxpayers could not be left to bail out debt-ridden countries.

On Thursday, Germany, the UK, France and Spain said plans to force bond holders to share the pain would come into effect in 2013. The cost of Irish bonds dropped on Friday.

The four EU countries said the bond holder proposals would not affect the existing debt of countries like Ireland.

On Friday morning, the cost of Irish bonds had fallen from around 9.25% to about 8.5%, a significant drop.

President of the European Commission, Jose Manuel Barroso, said on Thursday 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.

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 continued to rise.

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

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

Stringent cuts

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]."

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.

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