A downgrade by Moody's ratings agency of the Anglo-Irish Bank on Monday, cutting its debt close to junk status, has increased pressure on the Irish government to cut its budget deficit.
An economically faltering Ireland is struggling to convince the market that it can afford to revive its weak banking sector and also cut the biggest budget deficit in the European Union, amid the threat of a political crisis.
Moody's cut Anglo-Irish's senior bonds by three notches to Baa3, and its subordinated debt by six-notches to Caa1. This has increased the cost the country must bear to borrow on the money markets.
The move has also pushed the euro down against the dollar, reflecting market fears over the bank which has already been pledged about €20bn by the Irish government. This also comes amid increasing speculation that the government might admit that it has cost €35bn (£30bn) to bail out Anglo Irish.
The Irish Prime Minister Brian Cowen, who begins a new parliamentary term on Wednesday, is under pressure over the economic situation as the main opposition has claimed that it would try to force a snap election.