EQUIPO NIZKOR |
|
16Nov10
Irish under pressure in euro zone "survival crisis"
Ireland came under intense pressure on Tuesday to request aid over its debt crunch in what a top EU official called a "survival crisis" for the euro zone and the wider European Union.
As finance ministers of the 16-nation single currency area gathered in Brussels, Dublin was still resisting calls to seek a state bailout and insisting that only its banks may need help.
But the government was to make a statement to parliament at 1700 GMT, an hour after the euro zone meeting starts.
European Economic Affairs Commissioner Olli Rehn said the EU executive, the European Central Bank and the International Monetary Fund were all working on ways "to resolve the problems of the Irish banking sector."
However, European partners made clear ahead of the talks that loans from EU emergency funds could only be granted to a government that signs a formal austerity program on conditions set and enforced by the European Commission and the IMF.
European Council President Herman Van Rompuy, who chairs EU summits, told a Brussels think-tank the future of the 27-nation union was at stake in the latest spasm of a debt crisis that began a year ago with Greece.
"We are in a survival crisis," he told the European Policy Center. "We all have to work together in order to survive with the euro zone because if we don't survive with the euro zone, we will not survive with the European Union."
In an apparent rebuke to Van Rompuy, Rehn cautioned against alarmism, saying: "It's not a matter of the survival of the euro."
The European Central Bank and some euro zone peers want Dublin to take a quick decision on applying for aid amid signs that market contagion is spreading to fellow struggler Portugal and beginning to hurt Spain.
Failure to reach agreement at the talks, which widen to all EU finance ministers on Wednesday, could make markets even more jittery and push borrowing costs still higher for Ireland and other countries on the euro zone's periphery.
Eager to save face and protect a slim parliamentary majority, the Irish government has sought support for its banks, which were driven to the brink by the global financial crisis and a property market crash, without a formal state bailout.
"There is no reason why we should trigger an IMF or an EU-type bailout," Ireland's European affairs minister, Dick Roche, told BBC Radio.
But the Irish opposition said moves were already under way.
Conditions
In an indication of the sort of terms Brussels may be under pressure to set, a senior German lawmaker said Ireland should raise its ultra-low 12.5 percent corporation tax rate, a magnet for foreign investment, to help cut its debt.
Higher-tax countries have long seen the Irish rate as a form of unfair competition, especially since Dublin was until the mid-2000s one of the biggest recipients of EU regional aid.
One euro zone source said Finland was against putting pressure on Ireland to apply for a bailout quickly, saying EU financial aid must be a last resort.
Ireland's public borrowing needs are funded until mid-2011, but its bond yields have soared in the past week and its state-guaranteed banks are largely shut out of private sector interbank lending and reliant on the ECB for funds.
This has helped push up the borrowing costs of other countries on the euro zone's periphery, such as Spain and Portugal. Spanish short-term debt financing costs jumped at an auction of 12- and 18-month treasury bills on Tuesday.
Spanish Treasury Secretary Carlos Ocana pressed Ireland to come to a resolution quickly to end market uncertainties. "The important thing is that Ireland makes a decision as soon as possible," he told reporters in Madrid.
ECB executive board member Juergen Stark said the central bank would press on with scaling back lending support to banks in the new year in a move bound to increase pressure on Irish and Portuguese banks.
The Irish coalition government has been reluctant to apply a politically embarrassing bailout, partly because it faces a by-election it can ill afford to lose on November 25 and also because it wants to preserve its sovereignty.
Spillover
In Washington, U.S. Treasury Secretary Timothy Geithner said Europe was capable of dealing with the debt crisis but needed to act "very, very quickly" to combine temporary financial support with reforms that resolve underlying problems.
His remarks appeared to reflect U.S. concern that, if left to fester, they could spread and imperil global recovery.
The risk premium investors charge for holding Irish 10-year bonds rather than benchmark German Bunds widened to 579 basis points and the cost of insuring Irish, Portuguese and Greek debt against default edged up as peripheral euro zone bonds remained under stress ahead of the Brussels meeting.
European Central Bank Vice-President Vitor Constancio said that if Ireland decided to request aid, which it had not yet done, it would not necessarily force other countries, such as his native Portugal, to follow suit.
The ministers were also expected to discuss a 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.
Ireland and Greece says Germany has aggravated problems by pushing the idea of asset value reductions or "haircuts" for private bondholders under the planned permanent rescue mechanism, raising the spectre of potential defaults.
EU sources say possible aid under discussion for Ireland ranges from 45 billion to 90 billion euros ($63-123 billion), depending on whether Dublin needs support for its banks.
[Source: By Jan Strupczewski and Julien Toyer, Reuters, Brussels, 16Nov10]
 | This document has been published on 17Nov10 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. |