EU says survival at risk as Irish bailout looms
The European Union issued a stark assessment of the Irish debt crisis Tuesday, warning that the future of the 27-nation bloc was at risk as ministers headed for talks on an increasingly probable rescue.
With pressure threatening Portugal but Spain insisting it is safe from contagion, Ireland signalled it might accept help and an Irish newspaper said this would focus on a rescue for its stricken banks.
Irish Finance Minister Brian Lenihan is prepared to accept targeted EU support to prop up lenders, the Irish Independent newspaper reported amid pressure from the European Central Bank and certain political partners.
“We have to discuss these matters with partners as to how best we can underpin financial and banking stability within the euro area,” Irish Prime Minister Brian Cowen added.
“There are monetary policy situations arising now because of the turbulence on markets.
“We are engaged with our counterparts in relation to discussing with them how best be underpin banking and financial stabilities.”
EU President Herman Van Rompuy warned that the 27-nation bloc’s very future could be at stake.
“If we don’t survive with the eurozone we will not survive with the European Union,” he said.
In Madrid, Economy Minister Elena Salgado insisted there was no reason why Spain should be affected by alarm on financial markets about the state of Irish and Portuguese finances.
“The situation in Spain is and will continue to be completely different,” she said, although the Spanish government had to pay a much higher interest rate to borrow money in a bond sale on Tuesday.
There is concern that any contagion to Spain would take the crisis to a new level since the Spanish economy is the fifth biggest in the EU.
Bond yields for Ireland, Portugal and Greece all remain high. The speculation has hurt the euro and European stock markets fell appreciably on Tuesday.
Ireland is still drawing up massive new spending cuts to be announced within weeks. Twenty-four of the EU’s 27 states are currently running deficits way above EU limits.
At least one state indicated to AFP that it was fed up offering bailout assistance — Iceland and Latvia also benefit from its taxpayers’ solidarity — and suggested the outcome of talks in Brussels from 1600 GMT was not a foregone conclusion.
Austrian Finance Minister Josef Proell said his government would withold its December installment of 190 million euros in aid to Greece, saying Athens had not met its commitments to the European Union.
Finance ministers will grapple with an exploding debt crisis that has already brought Greece to its knees, requiring a 110-billion-euro international bailout.
Portugal also admitted it was at “high” risk of needing emergency help.
The urgency this time is due to massive debt write-downs arising from a property crash. Ireland’s public deficit this year is set to pass 30 percent of GDP, 10 times the permitted EU limit and double last year’s Greek deficit.
Julian Callow of London-based Barclays Capital Research said Ireland was under EU and ECB pressure to consider a rescue to “provide further reinforcement for its banking system and so reduce contagion risks.”
A source at the Luxembourg-based 440-billion-euro European Financial Stability Fund set up by eurozone leaders to prevent the Greek crisis from spreading said there was nothing to prevent money being pumped into Dublin purely to stabilise its banks.
“Ten billion of the money for Greece was for its banking sector. The percentage is a matter for political decision,” he underlined when asked by AFP if it could run to 100 percent.
US Treasury Secretary Timothy Geithner said he was confident Europe had the tools to tackle the crisis, with “a very strong set of financial instruments to help those countries manage through the very difficult challenges they have.”
Experts say Dublin will need about 70 billion euros. Eurogroup head Jean-Claude Juncker, the ECB, the European Commission and the International Monetary Fund indicated they are ready to act as soon as possible if asked.
But a diplomat from one country who asked to remain anonymous said enough was enough.
“We have already done our share. Our finance minister will be rather tough — this is a big thing for us,” the diplomat said.
“We’ve always been the good guys — but there’s a limit to that understanding.”