The EU Commissioner for Economic Affairs Olli Rehn has said he still hopes to help Ireland find a solution to the issue of the bank debt, despite the apparent setback to the Government's hopes due to the nature of the Spanish bank rescue.

Mr Rehn was speaking in Strasbourg at the end of a turbulent day when markets first rallied in response to the weekend announcement of a possible bail out for Spanish banks, only to slip back over renewed anxiety.

Mr Rehn was responding to a question by Fine Gael MEP Gay Mitchell.

He said the European Commission was committed to finding a solution to Ireland's debt burden issue.

But the issue has on the face of it been stalled with an elusive technical paper by the troika still unpublished.

The Government had hoped that a deal whereby the permanent rescue fund, the ESM would recapitalise Spanish banks directly without placing a further burden on the sovereign, could provide a template for something similar for the Anglo Irish promissory notes.

But the signals are that when it comes, a formal bailout of Spanish banks will count towards the country's debt.

However, given the decidedly short-lived relief on the markets and the continued rise of Spanish and indeed Italian borrowing costs, the authorities may already have to rethink how they handle the Spanish banking debt.

Meanwhile EU officials are reported to have looked at worst-case scenario contingency planning should Greece exit the euro after next Sunday's elections, with theoretical plans for a limit to ATM withdrawals, and capital controls.

Irish bailout format 'a mistake' - Dr Alan Ahearne

A former special advisor at the Department of Finance, Dr Alan Ahearne, has described the format of the Irish bailout deal as a mistake.

Speaking on RTÉ's Morning Ireland, he said it would have been better if the bailout funds had gone directly into the Irish banks and not been given to the State to put into the banks.

“It was a mistake. The Irish authorities in negotiations for the programme did want the new injections into the Irish banks to go directly, not to go to the Irish state,” said Mr Ahearne.

Dr Ahearne of NUI Galway said the Spanish bailout deal is very similar to Ireland's programme in that money has been lent to the Spanish government to be put into its viable banks.

He said it differs to the Irish one in that the Spanish government has not received a separate pool for state funding.

Instead the government is hoping to fill the gap in its deficit by borrowing from the markets.

After an emergency video conference on Saturday, eurozone finance ministers issued a statement saying they were "willing to respond favourably" to a Spanish plea for help.

The deal, which allows Spain to borrow up to €100 billion, was hailed by Germany, France, Japan, the US and the International Monetary Fund.

Initial market relief at the Spanish bank bailout was short-lived.

While stock markets across Asia rose in early trading, and Spanish bank shares surged, by lunchtime scepticism returned apparently because the rescue will inflate Spain's overall debt level.

There was also something of a slap down of the Spanish government which had hailed the rescue as a victory.

The European Commission insisted that there would be strings attached, at least for the restructuring of the financial sector, and that the IMF would be involved even though it is not pitching in money.

Dr Ahearne said Spain is hoping now that sentiment improves and that it can get the cost of borrowing down.

He said anybody buying Spanish bonds was taking a gamble on the losses in the Spanish banks and that this would put off investors.

Investor concerns have weighed on the euro with tensions high over fears Athens may exit the bloc following the polls. The unit has tumbled to multi-year lows against the dollar and yen in recent weeks.

Dr Ahearne said it would have been good for Ireland if Spain had been given different terms for its bailout, because then Ireland would have been able to apply for those same terms.

He said that if Spain had managed to get a direct injection of funding into its banks, then Ireland would also have been able to.