BRUSSELS — European officials geared up to travel to Ireland and lift the lid on just how bad the country's banking woes are, as EU finance ministers struggled Wednesday to come up with a rescue plan that will keep bond market turmoil from spreading to Portugal and Spain.
Irish and European Union 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 on a bailout. On Wednesday, Britain — which has made savage austerity cuts to avoid a debt crisis of its own — also offered help to protect Ireland's 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 and threatening the stability of the common euro currency.
A ?750 billion ($1 trillion) backstop — set up this spring by eurozone countries and the International Monetary Fund — stands ready to help Ireland and other nations that run out of money, EU officials stressed again Wednesday.
Representatives of the EU, the European Central Bank and the IMF will be in Dublin on Thursday to examine both the government and banks' accounting books. Irish Finance Minister Brian said there wouldn't be a decision on whether to request aid for the banks before then.
"The engagement now takes place, that's what's important. It begins later this week," Lenihan said. "Let's look at the facts and make our decision based on that."
Europe's debt troubles have been weighing on stock and bond markets and attracting investor concern well beyond Europe.
In Washington, White House press secretary Robert Gibbs said U.S. officials "continue to believe, as we did with Greece, that Europe has the ability to deal with the crisis in Ireland and possibly in other countries."
British Finance Minister George Osborne Wednesday offered support on top of any that might come from the eurozone, saying his country "stands ready to support Ireland" in whatever it needs to do to stabilize its banking system. The U.K. is a member of the EU but not of the eurozone.
Ireland has nationalized 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 — ten times the level allowed under EU rules.
In addition to the government bailout, Irish banks are also drawing billions of euros from the European Central Bank's liquidity support program, but EU monetary affairs chief Olli Rehn suggested that additional funds might have to come from other sources.
"I am quite confident that it will be very difficult for the ECB to go further than now in the providing of liquidity to some banks in the member states," Rehn said.
The priority for European leaders is containing the Irish woes from spreading to other vulnerable countries in the eurozone, 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.
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.
In afternoon trading, the interest rate, or yield, on Irish 10-year bonds slipped to 8.16 percent from 8.22 percent at the open, but was still way above what Ireland would be able to pay when it returns to the market next year.
The yield on equivalent Portuguese bonds also inched down slightly, to 6.69 percent to 6.76 percent. However, Germany, Europe's strongest economy, only has to pay 2.6 percent. Bonds being dumped must pay higher rates, while those in demand pay out less.
An Irish bailout would mean humiliation for the government ahead of possible national elections early next year. Ireland would lose some control over its finances in return for loans, which could mean being forced to give up the country's rock-bottom corporate tax rate — a key attraction to businesses that annoys other EU countries that have much higher rates.Comment on this story
The low tax rate helped Ireland become one of Europe's fastest growing economies over the past decade, transforming it from a resident of Europe's poorhouse into a "Celtic tiger." But when the boom collapsed in amid the financial crisis of 2008, Dublin was forced to rescue its banks, which had grown massively in recent years.
Should Ireland request aid after all, it wouldn't take long to raise the necessary money, said Klaus Regling, who runs the European Financial Stability Facility, the eurozone's portion of the ?750 billion financial backstop. It would issue bonds backed by eurozone governments.
"If one of our shareholders requests financial support, then the EFSF would be able to go to the markets very quickly," Regling said. After that, it would take five to eight working days to raise the money, he added.