MercoPress. South Atlantic News Agency

Europe ratifies support for Ireland’s budget policy and sovereign debt

President of the European Commission, Jose Manuel Barroso

Irish Finance minister Brian Lenihan has welcomed a statement of support over Ireland's debts from Germany, Britain, France, Italy and Spain. The five countries attending the G20 summit in South Korea said that bondholders would not be forced to share the pain of the current debt crisis.

Yields on Irish 10-year Government bonds rose above 9% on Thursday as markets reacted to comments by German Chancellor Angela Merkel that investors may suffer in any future bailouts from 2013 onwards.

Mr Lenihan said the statement makes it clear that any potential private sector involvement in that mechanism does not apply to any outstanding debt and “any program under current instruments”.

“Any new mechanism would only come into effect after mid-2013. So this would have no impact whatsoever on the current arrangements.

”Our EU partners have confirmed their full confidence in the budgetary strategy being pursued by the Government.“

The Irish sovereign debt crisis was the subject of discussions at the G20 summit in South Korea. German Chancellor Angela Merkel said the EU is ready to deal with all scenarios regarding Ireland's debt.

Ms Merkel told a news conference in Seoul that financial market investors had failed to understand the EU support mechanism to deal with crises in the Euro zone.

However she did state that European taxpayers should not pay the whole price of rescuing debt-laden countries.

”Let me put it simply - there may be a contradiction between the interests of the financial world and those of the political world. We cannot explain to our voters and citizens why taxpayers must finance certain risks, and not those who made a great deal of money taking those risks,“ Merkel added.

The President of the European Commission, Jose Manuel Barroso, had also anticipated that the EU would support the Irish Republic ”if needed“, after the yield on government bonds hit record highs.

”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]” said Barroso.

The Irish government has already imposed stringent cuts on civil service pay and state spending, and plans to unveil details of a further 15 billion Euros of cuts on 7 December.

They will include a further 6 billion Euros of cuts next year, designed to bring the budget deficit down to between 9.5-9.75% of GDP. The government's deficit surged (to a record 32% of GDP) during the recession after it was forced to bail out the country's banking system.