There is intense speculation the Irish government needs financial help from the European Union Eurozone facing ‘survival crisis’
There is intense speculation the Irish government needs financial help from the European Union Eurozone ministers are set to meet in Brussels as the debt crisis once again threatens the 16-member bloc’s economic stability.
The talks come as the spotlight once again falls on the weaker member countries, and whether they can manage their debt without help from European Union (EU) assistance funds.
The Irish Republic on Monday insisted it did not need EU help.
But there is intense speculation it may be forced to use EU bail-out money.
Dublin said it was in contact with “international colleagues” but the Prime Minister, Brian Cowan, dismissed talk of a bail-out by the EU or IMF.
“One of the great pejorative phrases that continue to be used is this thing of bail out which suggests that the country is in some way seeking not to meet its obligations to meet its own debts – that is not the case,” he said.
He added that his government had firm plans for sorting out the country’s problems.
“In the coming weeks will be putting forward the plans that show how we put our budget back into order as a member of the Euro area,” he said.
Jean-Claude Juncker, the head of the Eurogroup of finance ministers, said the eurozone was ready to act “as soon as possible” if Ireland sought financial assistance.
But he stressed that “Ireland has not put forward their request”.
“As long as they don’t, we are not supposed to deal with a theoretical request,” he said.
A spokesman for Economic and Monetary Affairs Commissioner Olli Rehn said that pressure on Dublin to take a bail-out was not coming from the European Commissioner, but from “another player”.
“A bail-out would be a humiliation for a country that just a short while ago was the Celtic Tiger. Some see these days as critical for Irish fiscal independence”
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Last week, market anxiety spread to other heavily indebted eurozone nations, including Portugal and Spain, driving up their borrowing costs.
Portuguese Finance Minister Fernando Teixeira dos Santos told the Financial Times there was now a high risk that Portugal would have to seek foreign financial aid.
“The risk is high because we are not facing only a national or country problem,” he told the FT. “It is the problems of Greece, Portugal and Ireland. This is not a problem of only this country.”
He stressed subsequently, however, that Portugal had no immediate plans to ask for assistance.
The yield on Irish bonds – essentially IOUs sold by the government to fund state spending – traded lower on Monday, suggesting a slight easing of concerns.
Although Tuesday’s talks are routine, formal meeting of Eurozone ministers, the BBC’s Europe editor Gavin Hewitt said that high-level talks had already begun, involving European Commission President Jose Manuel Barroso and his economy commissioner Olli Rehn.
Brussels fears that any delay risks repeating the Greek crisis that earlier this year threatened the entire eurozone, he added.
“There would not be a banking system in Ireland – and therefore not an economy in any conventional sense – if it weren’t for the generosity of the European Central Bank in providing loans to Irish banks that the markets won’t provide”
Some reports suggest that the Irish Republic could seek help for its banking sector alone, rather than asking for help at a government level.
This, say observers, would save them the embarrassment of being rescued by the EU and avoid greater involvement by Brussels in economic decisions.
The Irish government has all but nationalised the country’s banking system, which had lent recklessly to property developers at a cost of 45bn euros.
The government has consistently stated its determination to restore stability to the public finances and stressed that it was “fully funded” until 2011.
Meanwhile concerns persist about the state of the Greek economy, which received an EU bail-out worth up to 110bn euros.
European and IMF officials will be in the country this week to decide whether to release the final tranche of the money.
The scale of the problems still facing Greece were further underlined by the latest official European figures which showed that its budget deficit in 2009 was markedly higher than previously stated.
Since 2008, the Irish Republic has suffered a dramatic collapse of its property market.
House values have fallen between 50% and 60% and bad debts – mainly in the form of loans to developers – have built up in the country’s main banks, bringing them to the verge of collapse.
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.
Its current deficit is an unprecedented 32% of gross domestic product, if the cost of bad debts in the Irish banking system is included.
The Irish government, which has a flimsy majority in parliament, is expected to publish another draconian budget on 7 December.
This will impose spending cuts or tax rises totalling 6bn euros to bring the deficit down to between 9.5-9.75% next year.
Investors fear the budget cuts are likely to worsen the country’s already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.
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