TAOISEACH Brian Cowen last night insisted he would fight on -- but his economic woes deepened as a major new report warned the country was perilously close to calling in outside help from the EU or the IMF.

After a disastrous three days, Mr Cowen offered little comfort to disgruntled Fianna Fail backbenchers as he failed to outline what changes he would make to his leadership, communications and lifestyle as a result of his 'Morning Ireland' interview debacle.

But the persistent grumbling over his leadership was overshadowed last night by two new economic blows.

The cost of borrowing for the country moved higher again on international bond markets, after falling back following last week's government decision to split Anglo Irish Bank.

And a report from Barclays, one of Europe's largest banks, said Ireland may yet need financial help from the IMF or the EU if conditions got any worse.

But a spokesman for Finance Minister Brian Lenihan said last night: "The Government's strategy for dealing with the economic and financial challenges has been commended by the EU Commission, the European Central Bank and many other international experts.

"This strategy is at an advanced stage and is being implemented in an extremely open and transparent manner."

Barclays said: "In the coming months the Government may need to seek outside help."

While Ireland has raised most of the money it needs for this year, the cost of Anglo and the scale of the deficit meant any further financial shocks could push the country over the edge, the bank warned.

It said that there was little room for "further unexpected financial sector losses" and that Ireland was running out of economic room.

The highly influential bank also advised Ireland to do a "deal" with Anglo bondholders.

This could entail asking them to reduce the amount that they are owed in return for a partial stake in the bank.

Barclays said Ireland might apply for assistance from the IMF at some point in future if bank losses grow much bigger.

It said going to the IMF before that could "cause alarm" on the markets.

Ireland is expected to post a deficit of 25pc of GDP this year, when bank losses are added -- the largest in Europe.

Meanwhile, Ireland's borrowing costs continued to edge over 6pc last night as concern lingered over the financial position of the country. A plan from last week to split Anglo into two banks has failed to allay the concerns of traders.

Two ratings agencies have raised questions over how much support the State is likely to give Anglo Irish Bank if it goes into a wind-down arrangement.

Greece is the only eurozone country facing interest rates as high as Ireland. Portugal, while also under pressure, is still able to borrow more cheaply than Ireland.

The current high borrowing costs may drop if the Government can estimate the final likely cost of Anglo.

The level of uncertainty about Irish bank losses continues to be a major negative for Irish bonds.

Mr Cowen said the rising cost of borrowing was a reaction to the demand in the bond market.

"In relation to the bond spreads, they spread for all countries, as I understand it today," he said.

Mr Cowen was in Brussels at an EU summit with the Foreign Affairs Minister Micheal Martin.

The pair put on a united front in the wake of the key role that the minister played in forcing Mr Cowen to apologise for his disastrous interview.

The silence from the Fianna Fail backbenchers was an ominous sign for Mr Cowen as the saga continued to play badly among the public.

But Mr Cowen said firmly that he believed he had the support of the Fianna Fail TDs and senators to continue in the job.

"Yes, we don't expect a general election any day soon.

"We're in the process of working with a Government... on policies that are necessary for the recovery of the country. And our mandate is there until 2012," the Taoiseach said.

The Labour Party blamed Mr Cowen's infamous radio interview for the latest hike in Ireland's cost of borrowing.

Irish Independent