Correspondent's Choice

This story about the Irish debt crisis was published by EurActiv on 16th November 2010.

Eurozone finance ministers will try to find a way to end Ireland’s debt crisis today (16 November), with Dublin resisting pressure to seek a state bailout as the governing majority faces a crucial by-election in mid-November.

The Irish government says it has been holding talks on how to provide stability for its banks and finances but denies a state rescue is needed to stop its problems spilling into other countries.

Irish Prime Minister Brian Cowen, whose parliamentary majority is on a knife-edge as he wrestles with the worst economic crisis in a generation, said high borrowing costs were making it hard for banks to support an economic recovery.

“[We have to discuss] how best to underpin financial and banking stability within the euro area,” he told national broadcaster RTE.

Cowen’s government has been reluctant to apply for assistance, partly because it faces a by-election it can ill afford to lose on 25 November and because it wants to preserve its sovereignty, including a low corporation tax, which is a key plank of Ireland’s economic strategy.

EU meeting

European finance officials would discuss funding costs and other issues at a meeting on Tuesday, said Cowen, who repeated Ireland had not applied for funding to help finance the state, whose debt was funded until mid-2011.

Luxembourg Prime Minister Jean Claude-Juncker, who chairs today’s talks in Brussels, said Ireland was not even close to asking for a bailout but the Irish opposition said it believed such moves were already under way.

“The Irish think that they can keep the problems they’re facing under control,” he told news agency Bloomberg. “They are not near the point where they would ask for external help.”

Ireland’s debt requirements are funded until mid-2011, but its borrowing costs have soared in the past week and investors are concerned it will not be able to service its debt. This has helped push up the borrowing costs of other countries on the 16-country euro zone’s periphery, such as Spain and Portugal.

Dublin could ask for funding to support its banks, which were driven into debt by the global financial crisis and a property market crash. Such a move would be less risky politically than asking for a state bailout.

“The cost of money as expressed in the bond market has been very high although it eased today. We have to discuss these matters with partners […] how best to underpin financial and banking stability within the euro area,” Prime Minister Cowen told RTE on Monday.

If such high borrowing costs became the norm, it would be hard for banks “to function as engines of recovery,” he said.

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