The euro is facing an unprecedented crisis after another country indicated on Monday night that it was at a “high risk” of requiring an international bail-out.
Portugal became the latest European nation to admit it was on the brink of seeking help from Brussels after Ireland confirmed it had begun preliminary talks over its debt problems.
Greece also disclosed that its economic problems are even worse than previously thought.
Angela Merkel, the German Chancellor, raised the spectre of the euro collapsing as she warned: “If the euro fails, then Europe fails.”
European finance ministers will meet in Brussels on Tuesday to begin discussions over a new European stability plan that is expected to result in billions of pounds being offered to Ireland, Portugal and possibly even Spain.
David Cameron said he was thankful that Britain had not joined the euro, but indicated his displeasure that taxpayers in this country face a pounds 7?billion liability in any bail-out package.
The veteran Conservative MP Peter Tapsell warned that the “potential knock-on effect” of the Irish crisis “could pose as great a threat to the world economy as did Lehman Brothers, AIG and Goldman Sachs in September 2008”.
Ireland has resisted growing international pressure to accept EU financial assistance amid concerns that this would lead to a surrender of political and economic sovereignty.
However, the German government is expected to signal that Ireland may have to accept a pounds 77?billion bail-out, along with a loss of economic and political independence, as the price of preserving the euro.
Mrs Merkel said that the single currency was “the glue that holds Europe together”.
Her words came as fellow eurozone members Portugal and Spain rounded on Ireland. They fear that international concerns over the euro will lead to so-called market contagion spreading to them.
Fernando Teixeira dos Santos, the Portuguese finance minister, said: “There is a risk of contagion. The risk is high because we are not facing only a national problem. It is the problems of Greece, Portugal and Ireland. This has to do with the eurozone and the stability of the eurozone, and that is why contagion in this framework is more likely.”
Mr Teixeira dos Santos added: “I would not want to lecture the Irish government on that. I want to believe they will decide to do what is most appropriate together for Ireland and the euro. I want to believe they have the vision to take the right decision.”
He later sought to clarify his comments, insisting that Portugal was not preparing to seek assistance.
Greece had earlier added to the growing uncertainty when it said it would breach the conditions for the bail-out it was granted by the EU earlier in the year. The Greek government said its debt problem was far worse than previous dire forecasts.
Eurostat, the EU statistics agency, said Greece’s 2009 budget deficit reached 15.4 per cent of gross domestic product, significantly above its previous figure of 13.6 per cent.
George Papandreou, the Greek Prime Minister, said new European-wide taxes may now be needed to fund bail-outs.
“We need a mechanism which can be funded through different forms and different ways,” he said. “My proposal is that taxes such as a financial tax or carbon dioxide taxes could be important revenues and resources for funding such a mechanism.”
Irish ministers continued to insist publicly on Monday that they did not require a European bail-out to help meet the cost of repaying the country’s debts. However, reports suggested that it may require help to shore up its banks.
Jean-Claude Juncker, the head of the Eurogroup of finance ministers, said the eurozone was indeed ready to act “as soon as possible” if Ireland sought financial assistance. But he stressed that “Ireland has not put forward their request”.
Ireland suffered the worst recession of any major economy and has amassed government debts of more than euros 100?billion (pounds 84?billion). It has an unemployment rate almost twice as high as Britain at 13.2 per cent and has a record deficit equivalent to 32 per cent of its gross domestic product.
Senior figures at the European Central Bank lined up on Monday to insist that the Irish accept international help to reassure investors that the euro was secure.
Miguel Angel Fernandez Ordonez, the Bank of Spain governor and a member of the ECB’s governing council, said: “The situation in the markets has been negative due in some part to the lack of a decision by Ireland. It’s not up to me to make a decision. Ireland should take the decision at the right moment.”