THE GOVERNMENT is campaigning to avert the threat of being forced to seek emergency fiscal aid from the EU authorities as it battles a drastic loss in investor confidence.
Market pressure eased slightly yesterday in response to an attempt by five EU finance ministers to boost the confidence of euro zone investors, but Irish and European officials remain very apprehensive about a record spike in the Government’s borrowing costs.
Uncertainty about Ireland’s frail position will come to the fore again on Tuesday when euro finance ministers gather in Brussels for their monthly meeting. Minister for Finance Brian Lenihan will be asked to provide an update on the bank rescue and on preparations for the 2011 budget and the four-year plan.
Three sources familiar with ongoing European scrutiny of Ireland’s plans said there is concern to ensure the Government manages to pass the budget and demonstrate to the markets it is executing the promised measures. They also acknowledged worries that the €45 billion bank bailout bill might rise.
Amid extensive efforts to shore up the Government’s position, there was contact between Dublin yesterday and the offices of European Commission chief José Manuel Barroso, European Central Bank chief Jean-Claude Trichet and German foreign minister Guido Westerwelle.
Taoiseach Brian Cowen and the European Commission last night dismissed a report by Reuters news agency that Ireland was already in talks about a drawdown of funds from the EU’s emergency fund.
“We have made no application whatever for funding. As the Minister for Finance has outlined, we have funding up to mid-year because of the pre-funding arrangements done by the National Treasury Management Agency,’’ Mr Cowen said as he canvassed ahead of the Donegal South West byelection. “So the sovereign, if you like, has that funding arrangement in place. We don’t have to borrow any money in respect of the sovereign issues that affect the Government . . .’’
Two well-placed sources told The Irish Times, however, that Irish officials have been involved in ''technical'' discussions about the procedures to be followed in the event of any aid application being made to the European Financial Stability Facility (EFSF). Such discussions have come amid informal contact between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund.
Asked about Irish involvement in such talks, Mr Lenihan’s spokesman said “there are no talks on an application for emergency funding from the EU”. On RTÉ Radio yesterday, Mr Lenihan said the Government was taking a “step-by-step” approach to build up credibility in the markets and said there was no need to go to the EFSF. “First of all, the State is well-funded into June of next year, to fund the budget, I think that’s important, we have substantial reserves,” he said.
“So why apply in those circumstances? It doesn’t seem to me to make any sense. It would send a signal to the markets that we’re not in a position to manage our affairs ourselves.”
Irish bond yields sparked fear of euro zone contagion on Thursday when they climbed above 9 per cent for 10-year money. They declined yesterday to 8.14 per cent after Germany, France, Spain, Britain and Italy said the holders of existing euro zone debt would not be compelled to take a writedown in a sovereign crisis.