Dublin has welcomed a statement of reassurance by fellow EU members over Ireland's debt crisis. The move came as investors appeared to grow nervous over a future bailout scheme and comments by Chancellor Angela Markel.
Ireland welcomed the statement as one of solidarity
EU members Britain, France, Germany, Italy and Spain published a joint statement on Friday declaring that bond market nerves over Ireland were misplaced.
The move, which was welcomed by the Irish government, came after the cost of borrowing for Dublin hit record highs on Thursday.
Schaeuble said investors had been guilty of a total misunderstanding
It was aimed at reassuring markets that current arrangements with Ireland would not be affected by future bailout proposals. These could, from 2013, make private investors share the costs of any national bailout.
"Any new mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements," the finance ministers of all five countries said in the declaration, issued from the G20 summit meeting of leading and emerging economies in Seoul.
Ten-year bonds on Irish government debt hit almost nine percent on Thursday, the highest in the history of the euro. Following the statement, the figure fell to below eight percent.
"I welcome the solidarity shown by our EU partners," Irish Finance Minister Brian Lenihan said after the declaration while his German counterpart Wolfgang Schaeuble said that investors had been guilty of a "total misunderstanding."
Merkel comments 'not helpful'
Meanwhile, Irish Prime Minister Brian Cowen claimed that markets had misinterpreted comments by Chancellor Angela Merkel, fuelling the upward surge in bond rates.
Irish Prime Minister Brian Cowen said Merkel's comments had fuelled the bond rate surge
Merkel suggested that not all national debt might be covered by Europe's taxpayers in the case of future bailouts by the EU. Merkel highlighted a "contradiction between the interests of the financial world and those of the political world" when speaking in Seoul on Thursday.
"It hasn't been helpful," Cowen told the Irish Independent newspaper on Friday. "What has been said there has had, I think, an unforeseen consequence. The consequence that the market has taken from it is to question the commitment to the repayment of debt."
Ireland is set to unveil a four-year austerity program later this month, involving a 15-billion-euro budget adjustment to reduce the public deficit, which has soared to 32 percent of gross domestic product.
The country's economic problems have been caused by a collapse in the property market and the multi-billion-euro bailout of the failed Anglo Irish Bank.
Author: Richard Connor (dpa, Reuters, AFP)
Editor: Andreas Illmer