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November 11, 2010    

Market jitters as Ireland debt crisis worsens

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by Kay Murchie
Market jitters as Ireland debt crisis worsens

The former “Celtic Tiger” economy is sending jitters throughout the euro zone today after borrowing costs surged to record highs.

Rumours of financial aid for the economy increased and come just months after Greece’s debt crisis.

However, claims that Ireland will have to turn to the EU rescue fund have been denied but developments are being monitored closely by European officials.

The EU rescue fund was established by European Governments and the International Monetary Fund after the Greek debt crisis earlier this year.

Yields on 10-year Irish bonds have been driven up to 9% from 6% in a matter of weeks and Irish Finance Minister, Brian Lenihan, described the bond spreads as “very serious”.

Speaking to press at the G20 summit in South Korea today, European Commission President Jose Manuel Barroso said the EU was ready to act should Ireland require assistance.

In addition, shares in Irish banks plunged today - highlighting fears about their exposure to the country’s property market. Allied Irish Banks lost 7%, while Bank of Ireland saw 8.4% wiped off its share price today.

The Royal Bank of Scotland also saw its share price fall - due to its large exposure to Ireland.

Ireland is now regarded as one of the weaker economies in the euro zone – it was one of the last in the region to emerge from recession.

The economy experienced a property boom since the late 1990s, with multinationals arriving to take advantage of one of the lowest corporate tax rates in the euro zone.

Finally, experts say the Irish Government is fully funded until at least the middle of next year - meaning a liquidity crisis is not going to happen anytime soon.

But if borrowing costs do not stabilise soon, many experts argue that Ireland will be forced to seek a rescue.

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