FEARS are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about its troubled banking sector.

The cost of buying insurance against Irish government bonds rose to record highs on Friday, having almost tripled in a week. Debt-market investors now rank Ireland as the most troubled economy in Europe.

Simon Johnson, the former chief economist of the International Monetary Fund, called for this weekend’s meeting of G7 finance ministers to put Ireland’s troubles at the top of the agenda.

Johnson said: “Don’t, please, tell me more about the basic principles of financial reform unless and until you have addressed the Irish problem. And don’t tell me the Irish have to sort this out for themselves. Eventually, the world always comes to help; check your notes on Iceland.

“It’s much better and much cheaper to come in early and decisively. We need a plan of action for Ireland, and we need it now.”

Pledges made by Ireland to support its banking sector amount to 220% of the country’s annual economic output. The total loans held in Irish banks are more than 11 times the size of the economy.

Following the scandal at Anglo Irish Bank over undisclosed loans, the market fears there are more hidden problems that could ultimately fall to the state to resolve.

With Ireland set to borrow an additional €15 billion (£13.4 billion) this year, the national debt pile will hit €70 billion.

The cost of insuring Irish debt hit 350 basis points on Friday, meaning that for every £100 of debt it would cost £3.50 to insure against default. A year ago it would have cost 10p to insure every £100 of Irish debt.

One possible solution would see Germany buy billions of euros of Irish government debt through a fund set up by the European Central Bank.

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