“Ireland’s dependence on Europe is a one-way street.”

As the Irish Times reported, the Irish Finance Minister, Brian Lenihan has been in Brussels this week in meetings about the troubled Anglo-Irish Bank.  He’s announced a three-month extension of the Government guarantee for short-term bank liabilities until the end of 2010.  The bank’s longer term future remains uncertain.

Meanwhile, the cost of the Irish State’s borrowing continues to rise

Irish bond spreads widened today and yields inched above 6 per cent, rising above the peaks reached at the height of the sovereign debt crisis in early May.

The spread between the benchmark 10-year bond and the German bund was 372 basis points this afternoon, while the yield earlier rose sharply, by over 30 points, to a new euro lifetime high of 6.011 per cent at one stage, before falling back to 5.98 per cent at 5pm.

This compares with a yield of 5.68 per cent a week ago and is now almost three times higher than equivalent German bonds, the lowest yielding bonds in the euro zone.

Nevermind says the Taoiseach…

…Mr Cowen insisted it was all part of the operation of the market.

“There has been turbulence generally in international bond markets for some time,” he said, describing the rise in the cost of borrowing as part of the ebb and flow of sentiment.

He also tried to calm market fears that Ireland would fail to get its financial affairs in order.

“We are absolutely committed to maintaining our plans (and) imposing the budgetary discipline that we set out with the European Commission,” Mr Cowen said.

Ah yes, the European Commission.  Another good analysis piece from the Irish Times‘ Arthur Beesley

For these reasons, the Minister now finds himself back in the throes of a high-stakes confidence game with investors who, in recent weeks, have driven the gap between the interest charge on Irish and German bonds to record levels.

In so doing he must keep onside his European friends, who learned the hard way this year that a serious deterioration in the fiscal standing of one euro-zone member can place other weaklings in peril and damage the wider currency.

This is a lonely place to be, a point emphasised last week by European Central Bank chief Jean-Claude Trichet when he said it was for the Government alone to resolve the Anglo affair. In so doing, Trichet did not respond directly to the question of whether the bank’s rescue represented an unbearable weight on taxpayers.

Trichet’s remarks belie the extent of help the Government is already receiving from the ECB via special loan facilities for banks and the provision of billions of euros of cash in exchange for Nama bonds. The ECB is also widely reputed to have been a buyer of Irish Government paper after its historic decision last May to purchase debt from euro countries.

All of this means Ireland’s reliance on Europe has never been deeper.