Fears are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about the troubled banking sector.
The cost of buying insurance against our government bonds rose to record highs on Friday. Debt-market investors now rank us as the most troubled economy in Europe. Pledges made by the Government to support the banking sector now amount to 220% of our annual economic output. The total loans held in Irish banks are more than 11 times the size of our economy.
Following the scandal at Anglo Irish Bank over undisclosed loans, the market fears there are more hidden problems that could ultimately fall to the state to resolve. With the Government set to borrow an additional €15 billion (£13.4 billion) this year, the national debt pile will hit €70 billion. The cost of insuring Irish debt hit 350 basis points on Friday, meaning that for every €100 of debt, it would cost €3.50 to insure against default. A year ago it would have cost 10cent to insure every €100 of our debt.
One possible solution might see Germany buy billions of euros of Irish government debt through a fund set up by the European Central Bank.
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