Europe's finance ministers Tuesday were grappling with how Ireland will pay for its bank rescue program and Greece will meet the terms of its earlier bailout.

The European Union's top monetary official, Olli Rehn, said the focus was on Ireland's banks as the EU worked with the European Central Bank, the International Monetary Fund and national governments at a crisis meeting in Brussels.

tp-irish-bank-bailout-cp-9763443

The exterior of a branch of the Anglo Irish Bank in Dublin, Tuesday. Europe's debt crisis reached a critical juncture Tuesday, as finance ministers sought to keep Ireland's market turmoil from triggering a domino effect that could topple other vulnerable nations. ((Peter Morrison/Associated Press))

"The [European] Commission, together with the ECB, IMF and the Irish authorities, are working in order to resolve serious problems of the Irish banking sector," he said.

"This is not a matter of the survival of the euro; this is a very serious problem in the banking sector of Ireland."

The ministers tried to keep Ireland's market turmoil from triggering a domino effect that could topple other vulnerable nations like Portugal, and rock the region's currency union and shaky economic recovery.

Only months after saving Greece from bankruptcy in May, the 16-country euro zone was confronting whether another bailout, for Ireland, was needed to calm nervous bond markets.

Yields on Irish bonds rose again Tuesday as investors' hopes for an early decision on an Irish bailout waned.

Irish deficit soars on bank bailout

The yield on 10-year Irish treasuries rose to 8.24 per cent from Monday's closing yield of 7.94 per cent.

Ireland's deficit is forecast to reach a staggering 32 per cent of GDP this year, a record for post-war Europe, mainly because of the 45-billion-euro (today worth close to $62 billion Cdn) bailout of its banks, which got into trouble due to reckless lending during an over inflated real estate bubble.

The government has taken over three — Anglo Irish, Irish Nationwide and the Educational Building Society — and has taken major stakes in Allied Irish Banks and Bank of Ireland. Allied Irish is expected to fall under majority state control within weeks.

The worry is that the tension over Ireland's stability is making borrowing more expensive for countries like Portugal and Spain, threatening to push them to the brink of default, as happened with Greece.

Ireland has resisted any notion it should take a bailout, which would mean humiliation for the government ahead of possible national elections early next year.

Ireland would also lose some control over its finances in return for loans, which could mean being forced to give up the country's rock-bottom corporate tax rate — a key attraction to businesses that annoys other EU countries that have much higher rates.

Austria balks at Greek bailout

Tensions among ministers also rose over the issue of the bailout for Greece.

Austrian Finance Minister Josef Proell said Austria hasn't yet released its contribution to the next tranche of the 110-billion-euro (worth $152 billion Cdn today ) emergency loan because Greece hadn't fulfilled the requirements of the bailout agreement, Austrian news agency APA reported.

"The current state of the data doesn't give a reason to release the tranche in November," Proell said.

The EU statistics agency on Monday said Greece's 2009 budget deficit was much higher than previously expected. To receive the next portion of the loan, Athens has to cut its deficit by a certain amount every year.

With files from The Associated Press