BACKGROUND:Europe will not stand by if bond yields rise above the ruinous levels seen last week
EVENTS ARE moving quickly as Taoiseach Brian Cowen tries to avoid seeking emergency financial aid from the EU and the IMF. After weeks of drama, in question right now is whether the Government can make it to budget day without approaching the bailout fund. It is determined to plough on, running the gauntlet of markets in the hope that the storm abates.
Yet there seems little doubt that some powerful figures in Europe believe it would be better for Cowen to move now to avert the threat of euro-zone contagion. Amid worries about the cost of the banking rescue, further anxiety surrounds the Coalition’s power to deliver promised budget measures.
Although the Government is fighting hard to stay in the game, its woes are compounded by a fundamentally weak bargaining position and the swirl of rumour and speculation that surrounds its plight. Ireland’s ailing fiscal position has taken centre-stage on the global scene as major international figures move to calm the turmoil from locations as distant as Seoul and Yokohama. Alongside soothing public words, however, a succession of doom-laden news agency reports point to grave doubt over Ireland’s chances of survival.
Although Irish officials have been involved in “technical” discussions on the procedures to be followed if it wanted to draw down aid, the Government on Friday evening dismissed a report by Reuters news agency that it was discussing a rescue package from Europe.
The denial, carefully worded, made it clear that there were no talks on an application for a bailout. It was crafted against the backdrop of informal talks between Brussels, Berlin and other capitals to ensure the readiness of the Luxembourg-based bailout fund in the event of an application from Dublin.
With the Government now seen to be campaigning against the threat of being forced into a rescue, Bloomberg news agency reported late on Friday that Ireland was urged to take aid on a European Central Bank (ECB) conference call earlier that day.
The ECB’s chief spokeswoman declined yesterday to comment on that.
By Saturday morning, the IMF had taken to the stage, its managing director Dominique Strauss-Kahn declaring overnight at an Asia-Pacific summit in Yokohama that Ireland can manage its own affairs well.
“I have not been in contact with Ireland,” Strauss-Kahn said. The IMF would be willing to help Ireland if needed in the future, but “until now it’s business as usual”. Ireland’s problems were mostly linked with “one big bank” and were different from those of Greece, he added. It was enough to turn the narrative a little in Ireland’s favour.
Later on Saturday, however, Bloomberg quoted a German official saying Berlin was pressing Dublin to accept aid before a meeting tomorrow night in Brussels of euro-zone finance ministers. While Germany’s finance ministry denied that it is pushing for an Irish bailout, senior European sources believe there is growing scepticism in Berlin about Ireland’s capacity to return safely to the borrowing markets next year. Thus some officials would prefer an immediate intervention.
With the BBC also reporting on Saturday that preliminary bailout talks were under way, the cumulative impact of negative weekend news points to renewed volatility when markets reopen this morning.
Some high-level European sources said it was an open question for several hours yesterday as to whether the Government would be encouraged to seek an immediate intervention. This goes against the procedures built into the bailout scheme – which require the government in question to apply for aid – but reflects acute worries in Brussels and further afield that Irish borrowing costs could spike this week to dangerous levels.
All involved in ever closer scrutiny over Ireland agree that a cardinal lesson from the Greek debt debacle is that a festering sovereign crisis in the euro zone creates serious problems for all members of the currency. Thus Europe will not stand by if bond yields rise above the ruinous levels seen last week when worries were sufficiently grave to prompt a joint statement in Seoul from the finance ministers of the five largest EU countries.
This helps explain why there were high-level meetings about the Irish situation in Brussels yesterday and informal contacts between euro-zone finance ministers. In Ireland, meanwhile, Ministers lined up to stress their determination to stay the course.
Contrary to expectation in some quarters, there was no conference call yesterday of the euro-zone ministers. Two well-placed sources said that the group – chaired by Luxembourgish prime minister Jean-Claude Juncker – remains on standby in the event of an upsurge in market volatility today.
