Irish Borrowing Costs Hit Record High

European officials said they were monitoring developments in Ireland closely, with the Handelsblatt newspaper quoting a German government source as saying aid could be unlocked "very quickly" if needed.

Ireland's fragile government is battling to prove it does not need a Greek-style rescue to help it reduce the worst budget deficit in Europe, but markets are sceptical about its ability to pass the first of four austerity budgets next month.

Compounding the pressure on Ireland and other euro zone countries like Portugal have been European plans to create a permanent rescue mechanism under which private debt holders would help shoulder the cost of future euro zone bailouts.

Although Germany has made clear the new mechanism would not apply to existing debt, the plan has spooked markets, raising fears of a domino-effect on peripheral euro members that only weeks ago appeared to have weathered the worst crisis in the single currency's bloc's 11-year history.

"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 necessary, but I am not going to make any speculation," Barroso said at a G20 summit in Seoul, when asked whether Brussels would need to act to support Ireland.