European officials to lift lid on Irish problem

By Gabriele Steinhauser

Associated Press

Published: Wednesday, Nov. 17 2010 12:00 a.m. MST

BRUSSELS — European authorities geared up to travel to Ireland and lift the lid on just how bad the country's debt woes are, as EU finance ministers struggled Wednesday to hammer out a rescue plan to keep the market turmoil from spreading to Portugal and Spain.

Irish and EU officials had vowed the day before to stabilize the banks at the center of the country's financial crisis to restore confidence in the wider 16-nation eurozone, but fell short of agreeing a bailout. On Wednesday, Britain — which has made savage austerity cuts to avoid a debt crisis of its own — also offered help to protect its heavily exposed banks.

Ireland insists it does not want a bailout because it has enough money through the middle of next year and is wary of the strings attached to a rescue by the International Monetary Fund. But EU countries are worried that the turmoil is spreading to affect other highly-indebted countries like Portugal.

Representatives of the EU, the European Central Bank and the International Monetary Fund will be in Dublin on Thursday to examine both the government and banks' accounting books.

Meanwhile, Britain offered support on top of any that might come from the eurozone.

Britain "stands ready to support Ireland" in whatever the debt-stricken country needs to do to stabilize its troubled banking system, said Finance Minister George Osborne. The U.K. is a member of the EU but not of the eurozone.

"It is natural (that the U.K. would be interested in helping to stabilize Ireland), because the United Kingdom and U.K. banks have a very, very significant exposure in Ireland," said the EU's monetary affairs chief Olli Rehn.

Ireland has taken over three banks and is expected to take over more in a bailout that has already reached €45 billion ($61 billion) and likely will push the nation's 2010 deficit to a staggering 32 percent of GDP. The government in Dublin insists it doesn't need a bailout from Europe, but growing doubts about Ireland's ability to pay its bills have sent interest rates soaring on Irish bonds.

Those concerns have also worsened the debt crisis for other vulnerable European countries, pushing borrowing costs up to an extent that threatens to destabilize the common euro currency.

The priority for European leaders is containing a contagion, and many think a concrete response is the only solution.

Underlining the importance of a decision on Ireland for the banking sector in the wider eurozone, Josef Ackermann, the chief executive of Deutsche Bank AG also attended Wednesday's meeting of finance ministers.

"A breakout of any state on the markets right now would lead to contagion and we want to avoid this with all means," Ackermann said. "We have to do everything to catch every country that runs into trouble."

Behind Ireland stands Portugal, one of the eurozone's smaller members with 1.8 percent of its economy but one that is considered by some to have done less than the Irish to bring debt and deficits back under control. Next comes Spain, with a proportionally smaller debt burden but a dead-in-the-water economy that is so big — 11.7 percent of eurozone output — that it could present a much larger challenge if it needs help.

The extent of political tensions over paying for state bailouts was underscored Wednesday after Austria claimed the next installment in Greece's international bailout loan would be delayed, a claim promptly rejected by EU and Greek officials. Austria said it is concerned that Greece will not be able to cut its deficit as much as expected.

Governments struggling with debt — built up during the recession and in some cases over years of living beyond their means — have slashed spending and raised taxes. But such austerity measures threaten to undermine desperately needed economic growth, in turn making it harder for nations to repay their debts.

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