Global Biz

Ireland to work with EU/IMF mission on crisis steps

(Agencies)
Updated: 2010-11-17 21:35

BRUSSELS - Ireland promised on Wednesday to work with a European Union-IMF mission on immediate steps to help its stricken banking sector, a process which could lead to a bailout which Dublin has so far resisted.

Euro zone finance ministers agreed late on Tuesday that a team of specialists from the European Commission, the International Monetary Fund and European Central Bank would travel to Ireland on Thursday to examine what measures may be needed if Dublin decided to seek aid.

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"What's here now is a common determination that we work on these difficulties ... that work is well underway," Irish Finance Minister Brian Lenihan told state Irish broadcaster RTE.

Lenihan said euro zone peers had welcomed his four-year, 15 billion euros budget-cutting strategy which he hopes to publish next week, suggesting he sees no need for further fiscal tightening.

"Our budgetary policy has full confidence among European partners. But in relation to banking, steps taken to date require further support," he said.

"What may be required may not in fact be an actual transfer of money now but demonstration of how much money can be made available if further difficulties materialise."

In an indication financial markets were unimpressed by Dublin's decision to reject assistance for now, the premium investors charge for holding Irish 10-year bonds rather than German Bunds rose to a near-record 595 basis points.

LCH.Clearnet, a clearing house for sovereign debt, doubled its margin requirement on Irish bonds to 30 percent of net positions, an indication of the increased risk of default.

The cost of insuring against default by Ireland jumped, with five-year credit default swaps widening by 25 basis points on the day to 545 bps, while those for Spain and Portugal also rose -- a sign of the contagion that EU policymakers fear most.

The Irish government hopes to avoid a humiliating rescue that could further weaken its grip on power, with a by-election scheduled for Nov 25, a vote that could reduce the government's parliamentary majority to just two seats.

Lenihan dismissed suggestions that Ireland should raise its ultra-low 12.5 percent corporation tax rate to help cut its debt. Higher-tax countries, including Britain, have long seen the Irish rate as a form of unfair competition.

"Of course our corporate tax rate is safe," he said.

But the euro zone is acting tough with Athens -- on Tuesday ministers told Greece to cut its spending more to meet budget deficit reduction targets agreed as part of its bailout -- and could attach strict conditions to any Irish aid.