November 15, 2010

Ireland Denies Need for Bailout After EU Talks

In wake of grim Friday outlook, IMF says Ireland can manage, but rescue not ruled out

Despite increased borrowing costs and rumors of a possible bailout, Ireland’s minister of enterprise, trade and innovation said Sunday that the countrywas not in need of rescueand has funding till the middle of 2011. In a Reuters report, Batt O’Keefe stressed that Ireland was not in talks with the European Union about a rescue package, despite reports on Friday to the contrary from EU sources.

The rise of interest rates on Irish bonds to record highs last week led to concerns during the G20 meeting that the country would need a rescue package similar to that granted to Greece, and on Friday EU sources informed Reuters that it was in talks with Ireland about emergency funding.

However, on Sunday O’Keefe insisted that such was not the case and that Ireland neither wanted nor needed a Greece-style bailout. He told national broadcaster RTE, ". . . We have every confidence that we will be able to manage this economy. It's been a very hard-won sovereignty for this country and this government is not going to give over that sovereignty to anyone.”

While Dominique Strauss-Kahn, the International Monetary Fund’s (IMF) managing director, said on Saturday that Ireland had not requested aid and that he was unaware of talks, Olli Rehn, European economic and monetary affairs commissioner, had another version. He told Finnish broadcaster YLE: "We are ready and reviewing the situation in close cooperation with Ireland's authorities," and added that the Eurogroup, euro zone finance ministers, would meet to discuss Ireland on Tuesday.

Strauss-Kahn had said, "So far I have not had a request, and I think Ireland can manage well."

EU sources had said it was “very likely” that the nation would have to have help amounting to between 45 and 90 billion euros from the European Financial Stability Facility (EFSF); the amount would depend on whether the bank sector required assistance. Ireland’s bank situation is different from that of Greece, in that a single bank

Another Reuters report said that Prime Minister Brian Cowen may be forced into accepting a bailout if Brussels is sufficiently concerned over Ireland’s financial condition to compel the arrangement. Ireland is concerned that it will lose its advantageously low corporate tax rate of 12.5% if it is forced into accepting EFSF funds. Cowen, already unpopular at home, lacks the standing to take a hard line with the IMF or the EU. Ireland also blames Germany for its precarious position, because that nation has advocated asset value reductions for private bondholders at some time in the future.

A later report quoted Dermot Ahern, Ireland’s justice minister, as holding the door open for a bailout, although he downplayed the idea that talks were already in progress. On RTE’s This Week in Politics, he refused to rule out the possibility that Ireland would ask for help, saying, “Things are happening day by day,” but also called the reports of bailout discussions “fiction.”

In a script released by the broadcaster, he said, "There are no negotiations going on. If there were, the government would be aware of it, and we are not aware of it." He added that he had spoken to both Prime Minister Brian Cowen and Finance Minister Brian Lenihan.

Portugal is said to be the next nation possibly in need of financial rescue. Reuters reported that Erik Nielsen, chief European economist at Goldman Sachs, had written that the EU might be considering aiding Portugal. He further said, "In spite of their differences, if (when) Ireland or Portugal officially seeks help, it can only be in everyone's interest to start the process for the other country at the same time."

Read more about the G20 at AdvisorOne.com.

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