The Irish Republic has insisted it does not need European Union assistance amid speculation it is under pressure to use an EU bail-out fund.<\/p>\n
Dublin said it was in contact with “international colleagues”.<\/p>\n
But it dismissed reports that it may approach the European Financial Stability Fund (EFSF) for up to 80bn euros (\u00a368bn; $110bn) as “fiction”.<\/p>\n
Ireland’s difficulties will be discussed by EU finance ministers in Brussels on Tuesday.<\/p>\n
However, the BBC’s Europe editor Gavin Hewitt said that high-level talks had already begun, involving European Commission President Jose Manuel Barroso and his economy commissioner Olli Rehn.<\/p>\n
“Some EU officials believe it would be better for the Republic to accept a bail-out package now rather than to allow uncertainty to continue,” Gavin Hewitt said.<\/p>\n
Brussels fears that any delay risks repeating the Greek crisis that earlier this year threatened the entire eurozone, he added.<\/p>\n
In May, the EU agreed a 110bn-euros bail-out for Greece. Officials will be in the country this week to decide whether to release the final tranche of the money.<\/p>\n
But over the weekend, Greek Prime Minister George Papandreou signalled it may have to ask for permission to delay its repayments.<\/p>\n
The scale problems still facing Greece were further underlined by the latest official European figures which showed that its budget deficit in 2009 was markedly higher than previously stated.<\/p>\n
Some reports suggest that the Irish Republic could seek help for its banking sector alone, rather than asking for help at a government level.<\/p>\n
This, say observers, would allow them to maintain control of the economy, while avoiding the embarrassment of the country being rescued by the EU.<\/p>\n
However the EFSF cannot be used to lend directly to banks, said European Central Bank vice president Vitor Constancio.<\/p>\n
“The facility lends to governments and then the governments of course may use the money to that purpose in similar lines that exist for Greece,” he said.<\/p>\n
“The same could be done for Ireland.”<\/p>\n
The Irish government has all but nationalised the country’s banking system, which had lent recklessly to property developers at a cost of 45bn euros.<\/p>\n
The price of Irish bonds – essentially IOUs sold by the government to fund state spending – were little changed in early trading on Monday.<\/p>\n
The yield on the bonds has soared in recent weeks, indicating that investors believe there is an increased risk of the Republic defaulting on its debt.<\/p>\n
There are concerns that if the EU does not intervene, there could be contagion elsewhere in the eurozone.<\/p>\n
Last week, anxiety over the Irish Republic spread quickly in the financial markets to other heavily indebted eurozone nations, including Portugal and Spain, driving up their borrowing costs.<\/p>\n
And the shares of banks, including Royal Bank of Scotland, which have exposure to Irish government debt have fallen in the past week.<\/p>\n
A spokesman for the Irish finance department said the country was “fully funded till well into 2011”.<\/p>\n
Meanwhile trade and business minister Batt O’Keefe said the Republic must show it could “stand alone”.<\/p>\n
“It’s been a very hard-won sovereignty for this country and this government is not going to give over that sovereignty to anyone.”<\/p>\n
However, Jim Power, chief economist at the financial services group Friends First, said that “the reality is Ireland is now becoming a serious source of instability in the eurozone”.<\/p>\n
“At the EU level, there will be a huge imperative to try and stabilise this thorn in the side and one way of doing that would be to force Ireland to access the EU fund,” Mr Power added.<\/p>\n
Under procedures agreed in May, a eurozone country has to ask for help in order to trigger a bail-out.<\/p>\n
“Unfortunately, for those hoping to either prevent contagion – or to push through new rules regarding the crisis-resolution mechanism – Ireland has shown little interest so far in asking for assistance,” said analysts at BNY Mellon.<\/p>\n
Since 2008, the Irish Republic has suffered a dramatic collapse of its property market.<\/p>\n
House values have fallen between 50% and 60% and bad debts – mainly in the form of loans to developers – have built up in the country’s main banks, bringing them to the verge of collapse.<\/p>\n
The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014.<\/p>\n
Its current deficit is an unprecedented 32% of gross domestic product, if the cost of bad debts in the Irish banking system is included.<\/p>\n
The Irish government, which has a flimsy majority in parliament, is expected to publish another draconian budget on 7 December.<\/p>\n
This will impose spending cuts or tax rises totalling 6bn euros to bring the deficit down to between 9.5-9.75% next year.<\/p>\n
Investors fear the budget cuts are likely to worsen the country’s already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.<\/p>\n
The government’s parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.<\/p>\n
The government had left the Donegal South West seat empty for 17 months but the Republic’s second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.<\/p>\n","protected":false},"excerpt":{"rendered":"
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