Irish bond yields rose above 8 per cent today as European central bankers told euro zone governments today not to count on the ECB to solve the single currency region's debt crisis alone.
By 4.13m, the benchmark bond yield was 8.08 per cent, 0.1 per cent ahead of its opening level.
Minister for Finance Brian Lenihan told the Dáil today that Ireland would start tapping an €85 billion EU-IMF bailout from early next year to meet its sovereign borrowing requirements.
Data released today showed the Central Bank had lent the country's crippled banks nearly €45 billion in special funding up until the end of November, a €10 billion increase on the prior month.
The rise in bond yields also comes in the wake of Fitch's announcement yesterday that it was downgrading Ireland's credit rating by three notches, amid concerns over the cost of bailing out the banking system.
Pressure on high-deficit euro members like Portugal and Spain has eased slightly over the past week after the ECB bought government bonds in a thin end-of-year market, pushing down the borrowing costs of countries on Europe's southern periphery.
But to prevent further contagion, following their agreement to bail out Ireland last month, European leaders may need to send a strong signal to sceptical investors when they gather in Brussels for a December 16th-17th summit.
ECB executive board member Gertrude Tumpel-Gugerell wrote in a column in Austria's Format magazine that the bank's bond buys had been successful because they "gave countries time to prepare and decide on budgetary measures".
Meanwhile, Bank of Italy governor and ECB Governing Council member Mario Draghi told the Financial Times that responsibility for dealing with the crisis ultimately lay with euro zone governments and the ECB could go only so far.
"I'm only too aware that we could easily cross the line and lose everything we have, lose independence, and basically violate the (EU) treaty," said Mr Draghi, a leading candidate to replace Jean-Claude Trichet as ECB president.
German chancellor Angela Merkel and French president Nicolas Sarkozy met today in the southwestern German city of Freiburg to agree a common stance ahead of the EU summit and were due to hold a joint news conference at noon.
Ahead of their meeting, Mr Sarkozy's office voiced support for Ma Merkel's stance against issuing joint euro zone bonds - an idea pushed by Eurogroup president Jean-Claude Juncker and Italian finance minister Giulio Tremonti - or increasing the size of the region's stability fund to stem the crisis.
German coalition leaders yesterday rejected the euro bond idea as unacceptable.
The euro, which fell to a 10-week low under $1.30 late last month as the euro crisis deepened, was steady at $1.3260. The risk premiums investors demand to hold Portuguese and Spanish debt instead of German benchmarks edged higher on the day.
The summit is expected to finalise plans to introduce a permanent rescue mechanism for the euro zone to replace the €750 billion European Financial Stability Facility (EFSF) that it set up in May after bailing out Greece.
German demands that the new mechanism include the possibility of so-called "haircuts" for holders of euro zone sovereign debt has been blamed for exacerbating the crisis.
But ECB governing council member Ewald Nowotny said today that it was important for private investors to share the costs of any future bailouts.
"I think it is important to have a permanent safety net, a permanent instrument," Mr Nowotny, who also head the Austrian Central Bank, told reporters. "I think it is also correct that in this whole European stability mechanism the aspect of private investor involvement is covered."
Bloomberg