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Irish Borrowing costs fall to 2010 levels after German court ruling on rescue fund

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IRELAND’S cost of borrowing fell to less than 5.5pc for the first time since August 2010 today after the German constitutional court gave a green light for the country to ratify the eurozone's new rescue fund and budget pact.

But it also gave the German parliament veto powers over any future increases in the size of the fund.

The theoretical cost of Irish borrowing for nine-year notes is at the lowest level in more than two years.

The rate on the nine-year bond declined 12 basis points to 5.48pc this morning.

This means that Ireland can access a bailout fund when the present bailout runs out.

Analysts said the news that Ireland has a secure line of credit reduces the risk of a bailout.

The eagerly anticipated verdict by the court in Karlsruhe, southern Germany, boosted global stocks and the euro currency as investors breathed a sigh of relief that the euro zone's rescue fund could take effect after months of delay.

"I think it should be seen as a positive step in the long road to solving the euro zone debt crisis," said Henk Potts, market strategist at Barclays Wealth.

Earlier, Taoiseach Enda Kenny welcomed the decision by the German Court, paving the way for the new euro bailout fund, as "good news" and an "important element of progress".

But Mr Kenny admitted the EU deal on reducing Ireland's bank debt will be delayed.

The German Constitutional Court rejected calls this morning to block the Europe's permanent rescue fund - paving the way for its ratification by the country's president.

The Federal Constitutional Court rejected requests for an injunction blocking ratification of the European Stability Mechanism - a new, permanent €500bn bailout fund for the 17 countries that use the euro.

Speaking after the decision was announced, Mr Kenny said the ruling moved the EU “away from a potential crisis”

“The fact the German court has made a decision this is constitutional with German basic law – that’s an important element of progress.

“I haven’t had any time to study any conditions attached to it yet.

But it’s good news in the sense it moves you away from a potential crisis which would have arisen had that not been so,” he said at the Irish Funds Industry Association annual conference in Dublin.

However, the Taoiseach did admit some delay in striking a bank debt deal agreed in principle back in June.

EU Commissioner Olli Rehn set a deadline of October for the deal, but Mr Kenny conceded it will probably take longer.

"There may be some small slippage there but I expect that to be implemented in full," he said.

Mr Kenny also said the country will go to the international markets tomorrow to borrow money.

Mr Kenny said the State debt managers, the National Treasury Management Agency, will "dabble again in the markets for short term money".

The NTMA confirmed yesterday Ireland's return to the debt markets will continue tomorrow with a new issue of €500m of short-term government debt.

The NTMA said it planned to place €500m of three-month "treasury bills" -- a type of short-term borrowing -- with investors.

The Taoiaeach also admitted the EU deal on reducing Ireland's bank debt will be delayed.

EU Commissioner Olli Rehn set a deadline of October for the deal, but Mr Kenny conceded it will probably take longer.

"There may be some small slippage there but I expect that to be implemented in full," he said.