Government repeats denial it is holding talks on bailout

 

The Government has again insisted it neither needed nor was discussing financial aid and denied reports that the European Union and Germany was pressing it to accept emergency funding.

EU sources over the past two days said that talks on possible aid were under way and that Ireland was unlikely to hold out without assistance.

The European Union is keen for Ireland to accept aid, sources have said, to avert a Greek-style scenario where budget problems in one country plunge the entire euro zone into crisis.

Minister for Justice Dermot Ahern told RTÉ the reports of a bailout for Ireland were “fiction”.

Minister for Enterprise, Trade and Innovation Batt O'Keeffe said today Ireland was not like Greece in that it was funded until mid-2011 and that it was not discussing any bailout package with the European Union.

"No. It hasn't arisen. We have every confidence that we will be able to manage this economy," he told RTÉ radio this afternoon. "It's been a very hard-won sovereignty for this country and this government is not going to give over that sovereignty to anyone."

He added that the International Monetary Fund had stated it believed Ireland could manage on its own.

IMF chief Dominique Strauss-Kahn said yesterday that Ireland can manage its fiscal affairs well, and the fund has had no request for aid. "I have not been in contact with Ireland," he told reporters on the sidelines of an Asia-Pacific summit in Yokohama, Japan. "So far I have not had a request, and I think Ireland can manage well.”

He said the IMF would be willing to help Ireland if needed in the future, but "until now it's business as usual".

An unnamed German official was quoted today as saying his government is pressing Ireland to seek aid before next week’s European finance ministers meeting to calm market volatility.

Unless investor concerns about an Irish default are allayed, German chancellor Angela Merkel's plan to require investors to take write-offs in sovereign rescues as part of a crisis resolution mechanism to take effect in 2013 will be jeopardised, said the official, who declined to be identified because the talks are private.

Ms Merkel has publicly clashed with European Central Bank president Jean-Claude Trichet over the permanent mechanism, which is to be drafted by mid-December, with Mr Trichet saying that requiring investors to take losses in a sovereign rescue would undermine confidence.

Euro zone leaders are divided over Ms Merkel's proposal as well as over whether Ireland should seek aid now, said the German official.

Any aid to Ireland would come from an initial EU bailout mechanism or from the €440 billion European Financial Stability Facility (EFSF) set up after Greece was forced to seek help in May.

Taoiseach Brian Cowen and the European Commission have previously dismissed reports that Ireland was already in talks about a drawdown of funds from the rescue fund.

“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,” Mr Cowen said on Friday as he canvassed ahead of the Donegal South West byelection.

Two well-placed sources told The Irish Times, however, that Irish officials have been involved in ‘‘technical’’ discussions about the procedures to be followed in the event of any aid application being made to the EFSF. Such discussions have come amid informal contact between Brussels, Berlin and other capitals to assess their readiness to activate the fund.

Germany has denied that it has been exerting pressure on Ireland to accept aid before next week’s European finance ministers meeting to calm market volatility.

Ireland has blamed Germany for aggravating its woes by pushing the idea of asset value reductions or "haircuts" for private bondholders in a future rescue mechanism from 2013 which sent spreads wider on bonds of euro zone peripheral nations.

German chancellor Angela Merkel was quoted as saying at last week's G20 meeting that markets must understand that politicians cannot keep asking taxpayers to pay for losses incurred by investors when markets turn against them.

Ireland's borrowing costs shot to record highs in the past week on concerns about a deficit set to hit 32 per cent of GDP this year and worries bondholders could be forced to take "haircuts" on their holdings.

The focus on Ireland has not helped ease pressure elsewhere in the euro zone periphery.

The foreign minister of Portugal, seen by many investors as the next country in line for a rescue, said yesterday that failure to adopt a broad coalition government to deal with the crisis could force the country out of the euro.

Greece's prime minister said in an interview today that the possibility of extending repayment of its €110 billion EU/IMF loan was up for discussion.

Additional reporting: Reuters/Bloomberg