EU chief rejects Ireland contagion fears

(STRASBOURG) - European Union President Herman Van Rompuy sought Wednesday to ease fears that debt-stricken Ireland's troubles would spread to Portugal and other weak eurozone countries.

"If we are told that there is contagion, it is not on an economic basis, it is not on a rational basis," Van Rompuy told the European Parliament during a debate on Europe's economy in Strasbourg.

Unlike Ireland, he said, Portugal "does not suffer from a housing bubble, its financial sector is comparatively not very big, its banks are well capitalised.

"Let's not get the enemy wrong," he said.

The 16-nation eurozone has struggled to shake off concerns that other debt-saddled economies would go cap in hand to international lenders after Ireland asked for a bailout this week, six months after Greece was rescued.

The interest rates demanded by investors to lend money to Portugal have shot up owing to fears that it could be the next country to seek a bailout.

European Commission President Jose Manuel Barroso, a former Portuguese prime minister, warned against alarmist speculation and the effect of "self-fulfilling prophecy."

The situation would be "much worse if we did not have the euro," said Barroso, adding that some countries outside the eurozone have "worse problems."