European Union leaders must come up with a comprehensive plan for tackling the region's debt crisis if they hold an emergency summit on Friday, Taoiseach Enda Kenny has said.
Rating agency Moody's downgraded Ireland yesterday and said it was likely to follow Greece in needing a second bailout.
"There is no point in having a meeting that won't bring about a conclusion in a comprehensive sense to something that is not going to go away unless it is dealt with," the Taoiseach told the Dáil. "Moody's problem is not with Ireland, Ireland's problem is with Europe."
He told the chamber the agency had pointed out that Ireland was in a very different set of circumstances from other countries.
"Therefore, if a council meeting is to be held on Friday, it must be one that will grasp the nettle and set out Europe's response to the contagion which is clearly causing anxiety and concern," Mr Kenny said.
A market attack on Italy which, if it required assistance, would overwhelm the euro zone's existing rescue funds, looked to have rattled European leaders into action this week but Germany threw plans for a summit into doubt today, saying Greece was funded until September so there was no rush.
Portugal, Greece and Ireland are all struggling to generate enough growth to begin the long task of reducing high public debt burdens and end their reliance on emergency funding, but Minister for Finance Michael Noonan warned today that Ireland faced major challenges in dodging a second bailout.
"The challenges we face in returning to a position of economic sovereignty remain considerable," Mr Noonan told a parliamentary committee.
He also signalled that France may again demand Ireland raise its corporate tax rate in return for a cut in the cost of Dublin's European emergency loans, despite euro zone finance ministers agreeing on Monday to cut the cost of borrowings from the region's rescue fund.
"The details and level need to be worked out though and must be agreed by all euro area member states. It is not clear at this stage if, when the details become available, they will be acceptable to all member states," Mr Noonan said.
Ireland, like Greece before it, had planned on returning to market funding next year as part of last year's bailout from the European Union and International Monetary Fund, but Irish bond yields jumped to record highs today, making it less likely Dublin can fund itself affordably on markets.
Fianna Fáil leader Micheal Martin said Moody's decision to cut Irish debt to "junk status" was very frustrating.
"While it may be understandable in the context of the speculation about a default in Greece, it flies in the face of unquestionable evidence of Ireland's resolute actions and Europe's support for Ireland," he said.
Sinn Féin leader Gerry Adams said the Government must stop putting the people's money into bad toxic banks.
"Instead, it should be put into public services and the Government should stand up for Irish interests," he said.
Moody's move comes a week after it slashed Portugal to junk status with a similar warning about the need for a second round of rescue funds. It reflects the rating agency's view that any further financial assistance from Brussels will require private investors to share part of the pain, possibly through a debt rollover or swap.
The European Union's executive criticised the downgrade of Ireland, calling it "incomprehensible" and the timing of the announcement "questionable".
Ireland's rating, never before in junk territory, is now at Ba1, one notch below former financial market pariah Colombia and two notches below Brazil. Moody's has also kept a negative outlook, meaning further cuts are likely in the next 12 to 18 months.
Additional reporting: Reuters
