Sign up to The Irish Times Archive (1859 - 2008)My Account »

FOUR MONTHS ago the most pressing question in some quarters was whether Ireland could continue to borrow to finance a soaring budget deficit that was slipping further out of control. The answer was that it could do so with increased difficulty and at a higher financial cost. Foreign lenders sought ever-higher returns to compensate for the greater risks associated with a shrinking Irish economy – which may contract by 2 per cent in the three years to 2010.

In March, the yield difference – or spread – between Irish and German ten-year bonds had touched a record high. Ireland, as a sovereign borrower, was paying far more than Germany to issue government debt – almost 3 percentage points more – even though both countries share a common currency, the euro.