Euro zone seeks way out of Irish debt crisis
Euro zone finance ministers will try to find a way to end Ireland’s debt crisis on Tuesday, with Dublin resisting pressure to seek a state bailout by signalling that only its banks may need help. Skip related content
The Irish government, trying to protect a slim parliamentary majority, says it has been holding talks on how to provide stability for its banks and finances but denies a state rescue is needed to stop its problems spilling into other countries.
Luxembourg Prime Minister Jean Claude-Juncker, who chairs Tuesday’s talks in Brussels, said Ireland was not even close to asking for a bailout but the Irish opposition said it believed such moves were already under way.
Bank of Spain Governor Miguel Angel Fernandez Ordonez urged Dublin on Monday to do more to calm financial markets, telling reporters: “It’s not up to me to make a decision on Ireland, it’s Ireland that should take the decision at the right moment.”
Ireland’s debt requirements are funded until mid-2011, but its borrowing costs have soared in the past week and investors are concerned it will not be able to service its debt. This has helped push up the borrowing costs of other countries on the 16-country euro zone’s periphery, such as Spain and Portugal.
The Irish coalition government has been reluctant to apply for assistance, partly because it faces a by-election it can ill afford to lose on November 25 and also because it says it wants to preserve its sovereignty.
It could ask for funding to support its banks, which were driven into debt by the global financial crisis and a property market crash. Such a move would be less risky politically than asking for a state bailout.
“The cost of money as expressed in the bond market has been very high although it eased today. We have to discuss these matters with partners … how best to underpin financial and banking stability within the euro area,” Prime Minister Brian Cowen told the national broadcaster RTE on Monday.
If such high borrowing costs became the norm, it would be hard for banks “to function as engines of recovery,” he said.
Economists say Cowen’s government may be able to wait until after the by-election to request help but Irish opposition finance spokesman, Michael Noonan, told the BBC he believed “European intervention (is) under way.”
Ewald Nowotny, a member of the European Central Bank’s governing council, said the European Union wanted a “quick, good solution to Ireland, so that there will be no spill-over” to other heavily indebted countries such as Portugal and Spain.
Portuguese Finance Minister Fernando Teixeira dos Santos told Reuters there were no plans for Lisbon to request emergency foreign funding.
At their monthly meeting, the euro zone finance ministers are likely to praise Ireland’s 2011 budget cuts, which face a parliamentary vote of approval next month. They are joined for talks on Wednesday by the other EU finance ministers.
They are also expected to discuss the future euro zone crisis resolution mechanism, which Germany wants to start from 2013, replacing the 440-billion-euro European Financial Stability Facility set up after Greece sought help in May.
EU sources say possible aid under discussion ranges from 45 billion to 90 billion euros (39 billion-77 billion pounds), depending on whether Ireland needs support for its banks.
Ireland says Germany has aggravated problems by pushing the idea of asset value reductions or “haircuts” for private bondholders under the planned permanent rescue mechanism.
The idea has unsettled bond markets, which saw the debate as laying the ground for a potential default by euro zone countries such as Ireland, Portugal or Greece.