PostHeaderIcon Eurozone to work to help Ireland

A meeting of eurozone ministers in Brussels has ended with a promise to work towards further help for Ireland.

The European Union monetary affairs commissioner, Olli Rehn, said the 27-country bloc would “intensify” work on a support programme for Ireland – should Dublin request one.

He said the plan would have an “accent on restructuring its banking sector”.

The meeting came against a background of renewed financial market turmoil.

At the centre of this has been the markets’ fear that the governments of the weaker eurozone countries, particularly Ireland, would not be able to afford to repay their huge debts.

Mr Rehn said that “the Irish authorities are committed to working” with the EU, the European Central Bank and the International Monetary Fund to calm market turmoil.

He called Ireland the most pressing challenge of today, adding that there was “an intensification of preparations of a potential program in case it is requested” but the meeting proposed no concrete course of action.

A statement by the eurogroup following the meeting praised Ireland’s efforts to combat its problems: “The Eurogroup welcomes the significant efforts of Ireland to deal with the challenges it faces in the budgetary, competitiveness and financial sector areas.”

It concluded by noting that market pressures remained and therefore “further reforms and stabilisation measures may be appropriate”.

A further meeting, involving all 27 finance ministers of the EU rather than just eurozone members, will be held on Wednesday morning.

Ireland’s government has repeatedly denied that it is seeking outside support.

Earlier on Tuesday, Prime Minister Brian Cowen told parliament that he had not asked for bail-out money and that the Irish economy was well funded until next year.

“Having spent the last 36 hours in Dublin I can report a sense of deep resentment at the pressure being put on the Irish government. Ministers genuinely believe they have a strategy that can work”

Hewitt: Fear and the euro

He said his country was working with European partners to deal with the debt issue, but that his country was neither “immune or unique” amid the recent economic crisis.

Earlier, Mr Rehn warned that Europe must “resist alarmism” amid the latest fears over Ireland’s debts.

Mr Rehn, speaking after the talks finished said the EU would, however, step up work on support for Ireland “with an accent” on its banks.

Earlier, the EU Council president, Herman Van Rompuy, warned that if the euro failed, so too would the EU.

However, he added he was “very confident” the problems could be overcome.

Uncertainty has caused the cost of Irish, Portuguese and Spanish government borrowing to rise significantly over recent weeks.

Rising yields are not an immediate concern for Ireland, as it does not need to borrow money on the markets this year.

But it is for countries such as Spain, which held an auction of government bonds earlier, and other countries facing large deficits.

“When Ireland explicitly guaranteed the Irish banking system just over two years ago, the finance minister, Brian Lenihan, said it was ‘the cheapest bank bailout in the world’. It is turning out to be very expensive”

Stephanomics: Crunch time Peston: How big is the crisis?

The Spanish treasury secretary called on Dublin to act quickly to end market uncertainties.

Portugal’s Finance Minister Fernando Teixeira dos Santos has urged Dublin to do the right thing for the euro and accept a bail-out.

The BBC’s business editor Robert Peston said that much hinged on the stance of the European Central Bank (ECB) – which has propped up the Irish Republic’s banking system with loans it could not get on the money markets.

“Without the financial support of the ECB, Ireland would be bust right now,” he said.

“But if there is the faintest sign that the ECB wants to withdraw the succour it has provided to weak eurozone banks, Ireland will no longer have a choice, it will have to go cap in hand either to its EU partners or to the IMF.”

“Dublin desperately wants to keep as much control of its own affairs as possible”

Irish reluctant to take EU handout

There are a range of funds which troubled nations could access – including the European Financial stability facility – 440bn-euro (£372bn) pot of money set up to aid eurozone countries that run into debt difficulties.

And while the UK is not part of the eurozone, its taxpayers could end up footing some of the bill for any bail-outs.

For example, there is the European Financial Stability Mechanism – a 60bn-euro, EU-wide scheme, which countries can draw on and to which the UK contributes 12%.

Also, if the International Monetary Fund (IMF) is asked to step in, the UK would fund 4.5% of any aid.

Irish banks have struggled since 2008, when the Republic suffered a dramatic collapse of its property market.

House values have fallen between 50% and 60% and bad debts – mainly in the form of loans to developers – have built up in the country’s main banks, bringing them to the verge of collapse.

Reports suggest Ireland will try to reassure markets by bringing forward details of its four-year financial plan to next week.

The proposals will be severe. It has said it will impose unprecedented spending cuts or tax rises totalling 6bn euros (£5bn) to try to bring its underlying budget deficit down from about 12% to between 9.5 and 9.75% next year.

While intended to boost confidence in the country’s finances, investors fear the budget cuts could plunge Ireland back into recession, leading to further losses to the government via falling tax revenues and higher benefit payments.

The European Finance Commissioner, Olli Rehn

Olli Rehn described the financial situation in Ireland as “our most pressing challenge of today”

This article is from the BBC News website. © British Broadcasting Corporation, The BBC is not responsible for the content of external internet sites.

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