Jose Manuel Barroso, the European Commission president, says the EU is able to take action to support Ireland if it is needed. "What is important to know is that we have all the essential instruments in place in the European Union and euro zone to act if nececessary, but I am not going to make any speculation," Barroso said on Thursday.
He was speaking to journalists ahead of the Group of 20 leaders' summit in Seoul, South Korea.
Ireland is trying to tackle the worst budget deficit in the EU and convince markets it does not need a bailout. But two-thirds of economists and bond strategists polled by the Reuters news agency on Thursday said Ireland will seek international rescue funds before the end of next year.
Irish bond yields - the rate of return paid to investors holding the government debt instruments - have soared in the face of mounting investor unease at the country's shaky public finances, which were ravaged by recession and banking-sector rescues.
The country's cost of borrowing hit fresh record highs on Thursday, fuelling fears that the eurozone debt and deficit crisis could be entering a dangerous second phase just six months after a bailout of Greece.
Irish 10-year government bond yields jumped to 8.929 per cent, the highest level since the euro was created in 1999, placing Europe's bond markets under serious strain.
Monitoring developments
European banking stocks fell, with the Bank of Ireland losing 7.8 per cent, Credit Agricole down 2.4 per cent and Royal Bank of Scotland down 2.7 per cent.
European officials said they were monitoring developments but denied for a second day running that Dublin was seeking financial aid.
Major economies are battling soaring deficits after the global financial crisis forced many nations to rescue their banks, while the subsequent vicious recession also cut tax revenues.
Greece was bailed out in May by the European Union and the International Monetary Fund with an enormous €110bn [$150bn] rescue package as it came close to default, putting huge stains on the eurozone.
Ireland's bond market has been hit very badly this week despite assurances by Brian Cowen, the Irish prime minister, that the country would not be forced to seek help from a massive European bailout fund.
The government, which will unveil a four-year strategy to cut its public deficit later this month, that will involve a €15bn correction to rein in a gaping public finances deficit, has already stated that it is fully funded until July 2011 and does not need to return to bond markets this year.
However, those assurances have failed to prevent renewed speculation that Ireland may require external help.
On Thursday the government said that Brian Lenihan, Ireland's finance minister, would not be making any statement about ongoing bond-market turmoil, but the crisis has nevertheless raised the spectre of a repeat of Greece's near-bankruptcy.
Portuguese bond yields also hit historic highs on Thursday.
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