According to the Irish Times informal contacts are under way between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund in the event of an application from Dublin. However, German chancellor Angela Merkel is refusing to back down from her push to force private investors to share the burden of the European debt crisis, which have sent Irish borrowing costs to record high levels.
“The bond spreads are very serious and there is international concern throughout the euro zone about that.”
The Irish Times has established that informal contacts are under way between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund in the event of an application from Dublin, the newspaper writes Friday. In Brussels, a commission spokesman says the European authorities are following the situation very closely.
Germany, French, UK finance ministers are set to meet Friday to discuss Ireland and the bond market crisis as Irish, Spain, Portuguese and Italian borrowing cost keeps rising towards unprecedented levels.
The Irish CDS spread is now back at record high 600 basis points, the Portuguese at 500 and the Spanish spreads are getting close to 300 bp’s.
The financial markets seem to have lost all confidence in Ireland, and the political anxiety (not to say paranoia) in Europe centres on the fragility of the Government’s position as it prepares to extract €6 billion in cutbacks and tax increases in the budget and a total of €15 billion in the four-year recovery plan.
Further concern surrounds the position of Ireland’s banks, whose shares have fallen steadily in recent days amid fears the €45 billion bailout bill might rise.
Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, they fear contagion as the premium on Spanish and Italian debt jumped to record levels.
In addition the problems are now spilling over into the broader corporate market, in particular the financial sector.
Minister for Finance Brian Lenihan have attributed to some of the pressure on Ireland by referring to “unintended” remarks from German officials saying that new rescue measures would compel private lenders to shoulder some costs in future bailouts.
“The bond spreads are very serious and there is international concern throughout the euro zone about that,” Mr Lenihan says. The Government wanted clarification of the German plans and will proceed without aid, he added. “We have the capacity to put the State on a sustainable and credible basis.”
The financial market, however, is finding it increasingly difficult to take the Irish finance minister serious, remembering his bold statements from December last year: “The worst is over, we have turned a corner.”
Merkel Won’t Back Down
Speaking in Seoul, where she is attending the G20 summit, German chancellor Angela Merkel acknowledged the fact that firm stand on the European bailout issue have upset the markets.
Butt Merkel still insist on that it is unfair for taxpayers to be saddled alone with the cost of sovereign rescues:
“Let me put it simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” Dr. Merkel says. Adding; “We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”
Although Dr Merkel’s strategy has met resistance in the European Central Bank, France spoke up in her support when its finance minister, Christine Lagarde, spoke in favour of the “principle” of bondholders assuming bailout costs earlier this week.
“All stakeholders must participate in the gains and losses of any particular situation,” Lagarde said.
In spite of discussions between major European governments and Brussels, Berlin dismissed the German warnings yesterday, saying that the EU is “concerned” about Ireland’s financial situation and readying a bailout.
On its website, the business newspaper Handelsblatt quotes an unnamed German government source expressing concern about Irish sovereign bonds, saying governments were examining whether Ireland need help or not.
Barroso Ready To Roll
European Commission chief José Manuel Barroso tried to shore up confidence in Ireland yesterday by saying euro countries stand prepared to provide emergency aid if required, but other EU officials stressed the fact that the Irish Government has not asked for such assistance, yet.
With the single currency falling to a one-month low against the dollar, euro-zone finance ministers will discuss Ireland’s position at their monthly meeting next Tuesday in Brussels.
As 10-year borrowing costs reached 9.26 per cent yesterday, Ireland is the centre of the renewed market turbulence.
“What is important to know is that we have all the essential instruments in place in the EU and euro zone to act if necessary,” Mr Barroso says.
In Brussels, a commission spokesman confirm that the European authorities are following the situation very closely.
“There is no request for the moment. There is no need to activate any mechanism, Mr Barroso just confirmed that, in case of need, the mechanisms are in place,” the spokesman says.
Related by The Swapper:
- Irish, Portuguese Bond Trouble Hits Broader Corporate Market
- Irish CDS Spreads Hits A Whopping 600 Basis Points
- New All-Time-High For Irish CDS Spreads
- Ireland Blows Up
- EU Leaders Trigger Another Market Panic
- From Greece With Anger
- This Time Angela Merkel Got It Right
- EU Leaders Trigger Another Market Panic
- European Debt Chaos Sends Chills Through Credit Markets
- Irish bond yields dip as UK, EU urge calm (telegraph.co.uk)
- Europe Aims to Stem Bond Rout; G-20 Addresses Ireland (businessweek.com)
- Europe Tries to Stem Bond Rout as G-20 Leaders Discuss Ireland (businessweek.com)
- G-20 Leaders Hold Crisis Talks on Ireland Debt Burden (businessweek.com)
- European Ministers Discuss Ireland Debt Crisis at G-20 (businessweek.com)