Irish in crisis talks with EU nations, refuse aid

Nov 15 2010 - 10:27am

DUBLIN -- Debt-burdened Ireland is talking with other European Union governments about how to handle its troubled finances, but denied they needed a bailout from an EU rescue fund as the continent's debt crisis continued to challenge policymakers for a response that would calm market turmoil.

Greece, which has already received a financial rescue loan, had to revise its deficit figures upward yet again.

But the main focus was on Ireland ahead of a meeting Tuesday of eurozone finance ministers in Brussels, where they will look for ways to quell market fears of an eventual Irish default.

Those fears are driving up the borrowing costs of other EU nations saddled with red ink, notably Greece, Spain and Portugal.

Analysts said investors needed the finance ministers in Brussels to offer a clear path forward for Ireland to reduce its deficit and bear the costs of its enormous bank bailout.

Irish officials insisted they had no need to seek help because they have enough cash to avoid new borrowing until mid-2011. Still, speculation is mounting that other EU countries are pressing Ireland to stop the rout in bond markets by taking help from the eurozone's 750 million financial backstop put together with the EU executive commission and the International Monetary Fund.

"We have no reason whatsoever why Ireland should seek external support. Ireland is well funded," the country's minister for European affairs, Dick Roche, said in a telephone interview.

When asked if Ireland hoped to tap EU funds to boost the liquidity of its troubled banks, as opposed to the government, Roche said that was a matter for the European Central Bank in Frankfurt, not the EU's emergency fund.

"There is no reason for us to trigger any mechanism," Roche said. "There's been no political discussions about triggering any mechanism. We don't know how many times we have to say this, as a government, to stop all this inaccurate speculation."

A senior Irish opposition politician, Michael Noonan of the Fine Gael party, said he believed that other European governments were determined to intervene soon to contain Ireland's problems for the wider sake of eurozone stability.

"I think the Irish government are fighting a rear-guard action for appearances purposes, but ... I believe that things will come to head in the next 24 hours," Noonan said in reference to Tuesday's meeting of 16 euro-zone finance ministers and Wednesday's meeting of the ministers of all 27 EU members.

The Irish Department of Finance said in a statement it was pursuing "contacts at official level" but aides to Finance Minister Brian Lenihan emphasized Ireland has no need to tap the EU's emergency fund.

But market turmoil, reminiscent of that which preceded the Greek bailout in May, won't go away.

German Chancellor Angela Merkel in recent weeks has stressed her view that it's not right to make taxpayers, not bondholders, solely responsible for bailing out governments and banks.

The markets reacted by dumping the securities of the most vulnerable EU members, not just Ireland but also Greece and Portugal and to a lesser extent Italy and Spain. EU nations slowed the sellof by clarifying that any default process would apply to debt issued after the current EU stability fund expires in 2013.

That eased bond market tensions a bit, but Ireland remains under serious pressure and there are fears the selloff could spread to debt of other countries.

Ireland is struggling to slash a deficit that has ballooned this year to a staggering 32 percent of GDP, a record for post-war Europe. While Greece spent its way to disaster, much of Ireland's 2010 deficit involves the government's 45 billion takeover of five banks that ran into trouble following the 2008 collapse of the country's real estate boom.

Adding to the pressure on eurozone finance ministers, the European Union's statistics agency said Monday that Greece's 2009 budget deficit and debt were significantly higher than previously estimated.

Greece's revised budget deficit for 2009 of 15.4 percent of GDP will make it harder for the government to reach targets specified in its 110 billion bailout agreement in May. While Greek officials had forewarned investors of a likely rise in its deficit, the news reinforced fears that the eurozone's most debt-troubled members -- Greece, Ireland and Portugal -- wouldn't be able to turn the tide of red ink.

The yield, or interest rate, on Ireland's 10-year bonds fell Monday in expectation that other EU nations would intervene to ease its cash crisis. The yield rate opened at 8.14 percent and slid to 8.00 percent in afternoon trade.

High yields reflect weak market confidence in ability to pay. They also compound Ireland's effort to reverse its gigantic deficits because it means higher interest costs on any new borrowing in the markets.

The yield peaked Thursday at a record 8.95 percent -- before several key EU members, led by Germany, issued a statement stressing that they had no plans to make bondholders eat losses in event of an Irish bailout.

In Paris, Greek Prime Minister George Papandreou said Germany had been naive not to realize the impact its words would have on skittish investors.

He said the impact of the German proposal, if enacted, "could create a self-fulfilling prophecy. It's like saying to someone: Since you have a difficulty, I will put an even higher burden on your back. But this could break backs. This could force people into bankruptcy."

 

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