THE SOVEREIGN interest rate Ireland must pay to raise new borrowing has fallen back to where it was on the eve of the granting of the ¤440bn guarantee scheme.

The drop in the cost of borrowing money to levels of a year ago is the surest sign yet that the worst of the financial crisis for the Irish banks, and for the country, may be passing.

This weekend, the annual cost of Ireland to borrow new money for 10 years fell back to 4.7%, almost the same level as the 10-year benchmark bond was trading in September of last year when the Irish government moved to guarantee the majority of the liabilities held by the Irish banks. It represents a dramatic improvement from the middle of March when Ireland had to pay an interest rate of over 6%.

In early spring, many market participants in London were betting that Ireland, the worst hit of the advanced small economies by the global recession, would be cut off from credit and would join Iceland in needing to be bailed out by the IMF or the European Union.

Since then, commitments by the European Central Bank and by Germany not to let any fellow eurozone country go to the wall has seen a dramatic fall in the cost for Ireland in financing a growing sovereign debt load.

That improvement is timely because even after budget cuts in the upcoming December budget, Ireland will likely need to borrow at least another ¤20bn next year. Sovereign debt experts estimate the Irish debt pile, including the National Asset Management Agency discounted loans, will peak at above 110% of GDP in 2012, suggesting taxpayers will foot the costs of servicing a huge interest bill on over ¤185 of gross debt.

The crisis will push Ireland from the least indebted in Europe to among the most debt-laden.