ECB declines to say if it considered triggering rescue plan for Ireland

THE EUROPEAN Central Bank (ECB) declined to comment yesterday on a report in a leading German business newspaper that said the bank considered activating a rescue scheme for Ireland but decided against going down that road.

The report in the daily Handelsblatt also quoted anonymous sources as saying some euro zone governments had been told that they should be ready themselves to tap capital markets on Ireland’s behalf. “In the end, the decision fell against the plan,” the paper said.

A spokesman for the Department of Finance dismissed the report, saying it had no basis whatever in fact.

The report came two days after the French daily Le Monde said in an editorial comment that Dublin might have to seek assistance “in the next weeks” from the EU/IMF rescue scheme for distressed euro countries. However, a news item in Le Monde said an intervention was not in preparation.

An ECB spokesman in Frankfurt said the bank had nothing to say about the Handelsblatt report, which was questioned in some quarters because the European Financial Stability Facility can be activated only at the request of a euro country.

However, the spokesman pointed to proposals from the ECB last June on the reform of the EU’s system of economic governance.

In a section on the development of a permanent crisis management framework for the euro zone, that document said emergency support should be provided as “ultima ratio” (a last resort) in case that market financing was no longer available and at penalty terms.

The document continued: “Mechanisms could also be established for the Eurogroup to be able to elicit the activation of the support mechanism by a country which – due to a loss of market confidence – could otherwise endanger the financial stability of the Union as a whole.”

A well-placed source in Berlin suggested the leak from unnamed German government sources was payback for the claim by Minister for Finance Brian Lenihan’s claim last week that there was a “concerted attack on the euro zone” with a “concentration on weaker countries”. According to the source, Berlin does not share that view and sees Ireland’s financial problems as a national matter.

Handelsblatt quoted Société Générale economist James Nixon as saying that Dublin may soon have no option but to accept the help of the EU “against their will”.

The Handelsblatt report came as ECB president Jean-Claude Trichet addressed a committee of the European Parliament yesterday. In the course of the hearing, he said the Government was willing to take the necessary measures to cut the budget deficit.

“Ireland has proved in the past that they were able to take up the . . . challenges that they had to face up to, and I think it’s what the government of Ireland and parliament understand in the present period,” Mr Trichet said.

“The challenges are different on a country-to-country basis” and Ireland faces the “additional issue” of dealing with the burden of supporting its banks, he added.