Ireland said it is in contact with “international colleagues” over its Budget crisis yesterday amid speculation that a rescue is imminent, but it denied asking for an EU bailout.
The renewed denial that Ireland has sought help from a special EU system set up after the Greek debt crisis six months ago was backed by French Economy Minister Christine Lagarde who said no request had been made.
Pressure against Irish government debt rose in mid-morning trading on the eurozone sovereign debt market yesterday, amid a climate of deep concern about the state of public finances in Ireland and also in eurozone members Portugal and Greece.
There have been reports for days that some European Union governments have been pressuring the Irish government to seek assistance, so as to safeguard the stability of the euro.
“Ireland has made no application for external support. Ongoing contacts continue at official level with international colleagues in light of current market conditions,” an Irish Department of Finance spokesman said.
“The Irish government continues its work on the four-year budgetary plan and budget for 2011. Ireland is fully funded till well into 2011,” the spokesman added.
Speculation has reached fever pitch in recent days over a possible rescue for Ireland running to about €70 billion, with Irish government bond yields shooting through the roof over the past week.
Ireland is in deep trouble mainly because of the costs to its finances of dealing with a huge crisis in its banking system, which in turn was the result of massive over-expsoure to lending to property markets.
The Irish public deficit this year is set to be slightly more than 30 per cent of gross domestic product, 10 times the EU limit and more than three times the Greek deficit, the result of different, long-term structural weaknesses. The Irish 10-year bond yield or interest rate rose to 8.152 per cent from 7.926 per cent late on Friday, having shot up last week to 8.949 per cent, the highest level since it participated in the creation of the European single currency in 1999.
There was no immediate reaction from the European Union to the latest Irish statement, but reports in British newspapers said there had been further organisational talks late on Sunday.
A report in the Irish Independent newspaper said that the government was considering asking for money for Irish banks from the EU emergency fund in a bid to fend off a threatened bailout for the state.
The pattern resembles the build-up in the spring to a €110 billion EU-International Monetary Fund bailout of Greece when the cost of borrowing went through the roof as money markets lost confidence in Athens’ ability to pay its debts.
The issue has become a sensitive one for Ireland, with Prime Minister Brian Cowen clinging to power with a flimsy majority and his government keen to avoid any sense of a loss of sovereignty.