Cowen denies reports of EU talks on emergency funding

 

Taoiseach Brian Cowen has denied reports that negotiations are going on behind the scenes for emergency funding for Ireland from the European Union.

Speaking in Donegal this evening where he was canvassing support for Fianna Fáil candidate Senator Brian Ó Domhnaill in the November 25th byelection in Donegal South-West, Mr Cowen denied the wire-service reports which cited eurozone sources.

“We have made no application whatever for funding. As the Minister for Finance has outlined, we have funding up to mid-year because of the pre-funding arrangements done by the National Treasury Management Agency.”

Quoting an unnamed source, the Reuters news agency reported that Ireland was likely to become the second euro zone country, after Greece, to obtain an international rescue.

"Talks are ongoing and European Financial Stability Facility (EFSF) money will be used; there will be no haircuts or restructuring or anything of the kind," Reuters' euro zone source said.

A spokesperson for the Department of Finance also denied the report. "There are no talks on an application for emergency funding from the European Union," he said.

Earlier, Irish borrowing costs eased after EU leaders sought to reassure bondholders, unnerved by Ireland's fiscal problems, by saying anyone currently holding eurozone debt would not be forced to take a writedown.

Minister for Finance Brian Lenihan reasserted that the course of action being followed by the Government was correct and fully supported by international organisations.

"Ireland is following the correct course of action in relation to its budgetary policies, no questions have been raised about that by European authorities," he said.

Yields on Irish 10-year Government bonds eased today from record highs, falling by 0.715 per cent to 8.181 per cent by 2.45pm. The spread to the German bund was 568.6 basis points, a drop of almost 100 basis points.

This followed the release of a statement at the Group of 20 summit in Seoul this morning by the finance ministers of the European Union's five largest economies; France, Germany, Italy, Spain and Britain.

"Whatever the debate within the euro area about the future permanent crisis resolution mechanism and the potential private sector involvement in that mechanism we are clear that this does not apply to any outstanding debt and any programme under current instruments," the statement said.

It came after spreads on Irish 10-year government bonds over German bunds surged to record highs again yesterday, leading to concerns about a possible contagion effect for other heavily indebted euro zone countries such as Portugal and Spain.

Referring to recent French and German comments, Mr Lenihan said today the G20 had recognised that earlier ambiguities and doubts had caused difficulties.

“It has now been clearly stated by the finance ministers of France, Germany Italy, Spain and the United Kingdom that borrowing by Ireland and other countries next year will not be affected by the mechanism that is proposed to be introduced by the middle of 2013," Mr Lenihan said.

Mr Lenihan said it would make no sense for Ireland to request external aid, as the country was fully-funded to the middle of 2011.

He blamed much of the recent increase in the cost of borrowing on external rather than domestic factors.

"When markets remain that turbulent that's not the fault of Ireland, it's part of a wider international problem. That's why it's being discussed at the G20, and that's why our European partners are anxious to bring it to a resolution," he said.

Mr Lenihan said if the budget was not passed it would be a "major failure of credibility in the entire political system".

"The single most credible step as a people is to rally around a four-year plan that will show we are on a credible track in correcting the public finances and in going for a strategy that would create growth and jobs in this economy, and secondly, doing the first instalment of that strategy in the budget," he said. "That's what is fundamental for this country's international credibility," he told RTÉ radio.

International Monetary Fund (IMF) managing director Dominique Strauss-Kahn told reporters in Seoul today he has had no contact with the Irish authorities. "Everyone knows the problems Ireland is facing" and the reaction of markets, he said.

Taoiseach Brian Cowen said the stance of some EU members, particularly comments by Germany and France, had complicated efforts to battle the financial crisis.

"It hasn't been helpful," he said, referring to Chancellor Angela Merkel's intervention. "What has been said there has had, I think, an unforeseen consequence, perhaps."

"I'm not suggesting that anything was said for the purposes of causing further difficulty," he said but added: "The consequence that the market has taken from it is to question the commitment to the repayment of debt."

Mr Cowen said bond markets were "behaving irrationally".

Portugal, Spain and Italy are also seen as vulnerable to any troubles in Ireland as investors shun risky euro zone assets.

The G20, a body that accounts for 85 per cent of global economic output, has been charged with designing a new set to rules to prevent a recurrence of a global crisis, although critics say that it has struggled to reach a meaningful agreement.

The meeting continues today.

Additional reporting: Reuters/Bloomberg