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EU-IMF mission heads to Ireland

DUBLIN — Ireland agreed on Wednesday to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector, a process that could lead to a bailout despite Dublin’s deep reluctance.

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A team from the European Commission, the International Monetary Fund and European Central Bank will travel to Ireland on Thursday to examine what measures may be needed if Dublin decides to seek aid, eurozone finance ministers said. Irish Prime Minister Brian Cowen emphasised that the mission would look at what assistance Ireland might require, again rejecting suggestions his government was discussing a bailout.

“What we want to concentrate on now is in a focused way, over coming days, to sit down and see in what way can assistance be provided to ensure that these issues can be dealt with properly and appropriately,” he told parliament.

“There has been no question of the government ... (being) in a negotiation for a bailout,” he said, dismissing the term as pejorative. The EU’s commissioner for economic affairs, Olli Rehn, said the EU-IMF team would work intensively with Ireland “to determine the best way to provide any necessary support to address market risks, especially as regards the banking sector.”

“This can be considered as an intensification of the preparations for a potential programme if requested by the Irish government and deemed necessary by the euro area member states,” he told reporters after the finance ministers’ meeting ended. Irish Finance Minister Brian Lenihan said eurozone peers had welcomed his four-year, €15 billion budget-cutting strategy which he hopes to publish next week, suggesting he sees no need for further fiscal tightening. But he admitted the banking sector needed help.

“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,” he said. Ireland has said the bill for bailing out its banks could top €50 billion but investors fear the final figure could be even higher given rising residential mortgage arrears, deposit outflows and higher funding costs. Financial markets appeared unimpressed by Dublin’s decision to reject sovereign assistance, with the premium investors charge for holding Irish 10-year bonds rather than German Bunds holding at a near-record 575 basis points.

LCH.Clearnet, a clearing house for sovereign debt, doubled its margin requirement on Irish bonds to 30 per cent of net positions, an indication of the increased risk of default. Underlining the fear that Ireland’s problems could spread, Portugal’s borrowing costs soared at a treasury bill auction, with yields for 12-month paper jumping more than 150 basis points from a tender earlier this month.

“Of course our corporate tax rate is safe,” he said. But the eurozone is acting tough with Athens — on Tuesday ministers told Greece to cut its spending further to meet budget deficit reduction targets agreed as part of its bailout — and could attach stringent conditions to any Irish aid. While Ireland made no request for immediate EU rescue, resisting pressure to follow in Greece’s footsteps, economists said a state bailout remained a probability even though its public borrowing needs are funded 
until mid-2011. —