GERMAN CHANCELLOR Angela Merkel is refusing to back down from her push to force private investors to share the burden of the euro debt crisis, which helped send Irish borrowing costs to record levels.
Speaking in Seoul, where she is attending the G20 summit, Dr Merkel acknowledged her demands have upset the markets but insisted it was unfair for taxpayers to be saddled alone with the cost of sovereign rescues. “Let me put it simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” Dr Merkel said.
“We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”
European Commission chief José Manuel Barroso moved to shore up confidence in Ireland by saying euro countries stand prepared to provide emergency aid if required, but officials stressed the Government has not asked for such assistance.
The Irish Timeshas established, however, that informal contacts are under way between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund in the event of an application from Dublin.
Amid a loss of market confidence in Ireland, political anxiety in Europe centres on the fragility of the Government’s position as it prepares to extract €6 billion in cutbacks and tax increases in the budget and a total of €15 billion in the four-year recovery plan. Further concern surrounds the position of Ireland’s banks, whose shares have fallen steadily in recent days amid fears the €45 billion bailout bill might rise.
Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, fear of contagion emerged again yesterday as the premium on Spanish and Italian debt jumped to record levels.
With the single currency falling to a one-month low against the dollar, euro-zone finance ministers will discuss Ireland’s position at their monthly meeting next Tuesday in Brussels. As 10-year borrowing costs reached 9.26 per cent yesterday, Ireland is seen to be at the centre of renewed market turbulence. “What is important to know is that we have all the essential instruments in place in the EU and euro zone to act if necessary,” Mr Barroso said.
In Brussels, a commission spokesman said the European authorities are following the situation very closely. “There is no request for the moment. There is no need to activate any mechanism, Mr Barroso just confirmed that, in case of need, the mechanisms are in place,” he said.
Minister for Finance Brian Lenihan attributed some of the pressure on Ireland to “unintended” remarks from German officials about new rescue measures that would compel private lenders to shoulder some costs in future bailouts.
“The bond spreads are very serious and there is international concern throughout the euro zone about that,” Mr Lenihan said.
The Government wanted clarification of the German plans and will proceed without aid, he added. “We have the capacity to put the State on a sustainable and credible basis.”
Although Dr Merkel’s strategy has met resistance in the European Central Bank, France spoke up in her support when its finance minister, Christine Lagarde, spoke in favour of the “principle” of bondholders assuming bailout costs. “All stakeholders must participate in the gains and losses of any particular situation,” she said.
In spite of discussions between major European governments and Brussels, Berlin dismissed German reports yesterday that it was “concerned” about Ireland’s financial situation and readying a bailout.
On its website, business newspaper Handelsblattquoted an unnamed German government source expressing concern about Irish sovereign bonds and saying governments were examining whether Ireland needed help.