Prime Minister Brian Cowen signaled that his government will discuss measures to help the Irish banking system with European finance ministers tomorrow as he resists pressure to ask for a bailout of the country’s finances.
“We have to discuss these matters with partners as to how best to underpin financial and banking stability within the euro area,” Cowen said in an interview with Irish broadcaster RTE in Dublin today. Cowen stressed the government is making no aid application “for the funding of the state” and said he doesn’t expect any concrete agreement to come out of tomorrow’s talks.
As European officials push Ireland to request aid, Cowen’s language marks a shift from last week, when the government said there were no talks underway with European authorities. While the government still says it has enough cash to last it until mid-2011, Justice Minister Dermot Ahern said today the country’s cash-strapped lenders “have issues” and contacts with the European Central Bank and the European Commission are “ongoing.”
“The issue, as you know, has been in what way can we bring stability into the markets so that the costs of money overall will start to reduce,” Cowen said. If the current level “were to become the norm, would make it difficult for the banks to function as engines of recovery.”
Ireland’s banks have been left weakened by a property- market collapse and grown increasingly reliant on ECB funding. ECB Vice President Vitor Constancio said today Ireland could use European Union aid to bail out its cash-strapped banks.
Irish bonds rallied as investors bet a bailout is imminent from the 750 billion-euro ($1 trillion) fund created in May to stabilize the 16-nation euro economy. Germany is leading a drive to remedy Ireland’s debt woes before other countries succumb to the speculation that claimed Greece as the first victim. The yield on country’s 10-year debt fell 26 basis points to 8.15 percent, pushing the spread over benchmark German bunds to 540 basis points. That’s down from a record 652 basis points on Nov. 11.
EU-Irish aid negotiations are running in parallel with discussions in Dublin over whether to pump more cash into banks to push their capital above regulatory targets, said a person with direct knowledge of the deliberations who declined to be identified because a decision hasn’t yet been reached. A Finance Ministry spokesman declined to comment.
Cowen indicated he doesn’t expect a concrete agreement tomorrow night in Brussels, echoing comments by Luxembourg Prime Minister Jean-Claude Juncker.
“There’ll be further discussions there and, I’m sure, there’ll be discussions thereafter as well,” Cowen said.
Ireland is due to publish details of a four-year plan to reduce its budget deficit and its 2011 budget within the next month. Cowen said that the plans will help provide confidence in Ireland.
It will “provide further evidence that the government and the Irish nation and the country is determined to work our way through these issues,” he said.
Irish bonds have plunged on concern on concern about the rising cost of rescuing Anglo Irish Bank Corp., the bank it nationalized last year. Officials put the cost of cleaning up the banking system as high as 50 billion euros, equal to about a third of Ireland’s economic output.
Cowen nevertheless rejected the suggestion that Ireland will be unable to fund its obligations.
“One of the great pejorative terms that continue to be used is this thing of bailout which suggests that the country is in some way seeking not to meet its obligations, to meet its own debts,” Cowen said. “That is not the case.”
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