EU tries to calm Ireland's debtholders

The finance ministers of Germany, France, Italy, Spain and Britain sought to reassure the holders of Ireland's bonds Friday by promising that tougher new terms for future bailouts of indebted countries will not apply to existing creditors.

In a statement that helped calm market fears and lowered Irish bond yields, the ministers said the European Union's proposed new bailout mechanism "does not apply to any outstanding debt."

In other words, current lenders to governments would not be expected to share some of the costs of a bailout by other governments in the 16-country euro currency union.

Germany has been pushing to get bondholders to accept lower returns or, in some cases, losses on the debt they hold but has not explicitly said it would seek to impose those changes.

The ministers' statement took the edge off tensions in bond markets, pushing the Irish 10-year bond yields down to 8.13 per cent from 8.87 per cent at the opening of trade.

The yield hit a record high Thursday of 8.95 per cent.

Yields rise as bond prices fall, and higher yields signify more investor fear that they won't get paid back.

Still convinced bailout is coming

Some investors remain convinced Ireland will follow Greece in grasping for a financial lifeline sooner rather than later.

The EU ministers agreed to be clearer about their intentions and confirmed the new rules would not come into force before mid-2013.

The fear is that investor worry will spread to other indebted countries such as Spain, driving up borrowing costs until the debt load becomes unsustainable, or that banks exposed to Irish debt could get into trouble.

After saving Greece from bankruptcy in May, the EU set up the European Financial Stability Facility, a 750 billion-euro backstop for any other countries that might need support.

But that was meant only as a temporary cash guarantee until the EU agreed on firm guidelines on how to deal with sovereign default.