EUROPEAN OFFICIALS have warned that any collapse of the Coalition before an EU-IMF rescue deal was struck would be “very irresponsible”.
As the Greens signalled their exit from Government in January and anxiety about contagion risk from Ireland’s crisis weighed on the euro, a source familiar with the position of European negotiators said it was their clear understanding with the Irish authorities that the Government would be able to pass the 2011 budget next month.
The unfolding political drama in Dublin was closely observed from Brussels throughout the day, where EU officials were alerted in advance from Dublin of the statement last night by Taoiseach Brian Cowen.
Amid fears of Portugal coming under market pressure due to its poor public finances and high borrowing requirement, the European negotiators and International Monetary Fund (IMF) authorities want to conclude a rescue plan with Dublin quickly.
Preparations for the bailout with officials from the European Commission, the European Central Bank (ECB) and the IMF intensified yesterday after European finance ministers provisionally approved an aid application from the Government on Sunday night.
While it is the practice of European authorities not to comment on the internal politics of member states, three well-placed sources said it was clear it would not be possible to agree a bailout programme with a caretaker administration.
“From our perspective, it is important that the Government is able to represent Ireland in the talks,” said a senior source.
“It would be very unpleasant if there was nobody to talk to. That would be very irresponsible.”
To bring down the Government at this point would make a difficult situation much worse, the source added.
The agreement in principle to release aid to Ireland was reached at a teleconference of euro zone finance ministers and teleconference immediately afterwards of all EU ministers.
A number of well-placed observers said it was seen to be “remarkable” that the first official declaration of the Government’s aid application was made by Minister for Finance Brian Lenihan on radio and not by the Taoiseach.
A source who listened in on the ministerial talks on Sunday night said none of the ministers who spoke declared an increase in the 12.5 per cent corporate tax rate to be a prerequisite for aid.
However, other sources insist France and Germany have not backed down from their push to change the tax.
As markets digested news of the agreement, EU economics commissioner Olli Rehn and euro group chief Jean-Claude Jüncker each sought to play down fears of contagion.
At the European Parliament in Strasbourg, ECB chief Jean-Claude Trichet said the Government’s decision was a “good” one and added that the immediate response of the international community was very important.
Investors were unconvinced, however, with the euro trading downwards by 0.4 per cent against the dollar and Irish 10-year bond yields increasing to 8.31 per cent after trading as low as 8.06 per cent.
“I don’t think any immediate contagion effect could be the case,” said Mr Jüncker, who is prime minister of Luxembourg. The first “shipment” of aid could be made in January, he added.
“The fact that we settled the Irish case indicates that we are taking financial stability and the cohesion of the euro area very seriously.”
In Brussels, Mr Rehn’s spokesman said there were no analogies to be made between Portugal and Ireland, adding that the Irish case was “very specific”.
Addressing MEPs in Strasbourg, Mr Rehn said the provision of emergency aid to Ireland was “critical” for the preservation of stability in the euro area.
Aid would be provided “under a programme of rigorous policy conditionality” and would include “a fund for potential future capital needs of the banking sector”.
Mr Rehn and Mr Lenihan are understood to have been in contact throughout Saturday.
Mr Rehn also spoke several times with a number of European ministers in advance of the teleconference.