Irish bonds are hammered as EU bailout talks drag

The beleaguered nation was urged to accept a bailout today to stem lingering fears over an Irish default, with Dublin under intense pressure from the European Central Bank and other EU members to accept a deal amid worries over spreading contagion.

Finance ministers in Brussels were locked in talks over the crisis today, but huge doubts over the way forward triggered another sell-off of Ireland's debt after two days of easing pressure amid expectations of an 80 million (£68 billion) rescue.

Yields on Ireland's benchmark 10-year bonds rose to 8.2%, while the nation's cost of borrowing over ultra-safe German bonds widened to 5.62%
Greece — which yesterday said its 2009 deficit year had ballooned above 15% — was also under the cosh, having to pay 9% more than Germany to borrow.

"We have got a market that doesn't know what is coming next — it is becoming less and less sure that this bailout will take place. The EU finance ministers' meeting offers the chance to come to a conclusion on this," Lloyds TSB bond analyst David Page said.

Spanish Treasury Secretary Carlos Oacana publicly voiced the view of many eurozone leaders when he pressed Ireland to call for a bailout quickly to ease fears of Europe-wide contagion.

"The important thing is that Ireland makes a decision as soon as possible," he said. Portugal also fears having to seek international aid because markets are lumping it Greece and Ireland together.

ECB vice-president Vitor Constancio denied Ireland's woes would spread to other EU nations but added it would depend on "market developments".

Simon Tilford, chief economist at the London-based Centre for European Reform, warned: "Contagion to other member states will be all but inevitable. If, and when, it reaches Spain, the crisis risks spiralling out of control."

Ireland so far has remained stubbornly against a humiliating EU or IMF rescue, and instead wants more support for its stricken banking system from EU funds. Germany has been blamed for causing the crisis by calling for bondholders as well as taxpayers to take a share of losses on future bailouts, heaping pressure on weaker European nations.

Ireland's prime minister Brian Cowen is betting another round of budget cuts in December will convince markets it can get a grip on its finances.

BRITS FACE TAX BLOW'

Businesses which moved to Ireland to benefit from the country's super-low corporation tax regime could be forced to think again if the nation is forced to raise rates in return for a bailout, experts said today.

Deloitte's head of tax policy, Bill Dodwell, said the country's lack of a tax on overseas profits had been the big draw for firms such as WPP, but a rise in corporation tax from 12.5% could hit drugmaker Shire, which has manufacturing operations in Ireland.

"It will cause people to re-evaluate whether they are in the right place," Dodwell said. Shire declined to comment.