November 13, 2010 / 1:30 PM / in 7 years

IMF says Ireland can manage amid EU rescue talks

BRUSSELS/DUBLIN (Reuters) - Ireland can manage on its own, the head of the International Monetary Fund said on Saturday, a day after euro zone sources told Reuters the former “Celtic Tiger” was in talks about a possible EU rescue.

<p>International Monetary Fund (IMF) Manging Director Dominique Strauss-Kahn (C) speaks to reporters on the sidelines of the APEC Summit in Yokohama, south of Tokyo November 13, 2010. REUTERS/Rob Dawson</p>

IMF Managing Director Dominique Strauss-Kahn told reporters on the sidelines of an Asia=Pacific conference in Yokohama, Japan, that Ireland had not asked the Fund for aid.

“So far I have not had a request, and I think Ireland can manage well,” he said.

Euro zone sources told Reuters on Friday that talks on possible aid were under way, and one official said it was “very likely” Ireland would get help from the European Financial Stability Facility (EFSF), set up after Greece was forced to seek help in May.

“We do not really see how Ireland is going to be able to ‘hold on’ without EFSF help,” one euro zone source with knowledge of the talks said.

“Obviously since this implies a pretty tough programme for the government and to some extent a loss of sovereignty, they want to think twice...” the source said.

Euro zone sources said the range of aid under discussion was 45 billion to 90 billion euros, depending on whether Ireland would need support for its banking sector.

The German Sunday newspaper Welt am Sonntag cited EU diplomatic sources as saying Ireland may have to call on up to 70 billion euros, according to a prepublication text sent to Reuters.

A second euro zone source said the EU was pressing Ireland to accept emergency funding and added that Dublin was not keen to apply for it but might not have a choice, depending on the behavior of markets.

BANKING SECTOR

The first source said that while the Irish government was fully funded until mid-2011, much depended on the state of the Irish banking sector, which has suffered huge losses in the wake of the financial and economic crisis.

It was not certain that Ireland would apply for EU help in the end, but if Irish banks needed any additional support, this could force Dublin to seek EU assistance.

“I don’t think there will be a run on banks, but it depends on how they shape up next week,” the first source said.

Dublin has repeatedly denied that it plans to tap EU funds.

European Economic and Monetary Affairs Commissioner Olli Rehn told Finnish broadcaster YLE: “We are ready and reviewing the situation in close cooperation with Ireland’s authorities.”

He said a meeting of euro zone finance ministers, the Eurogroup, would discuss Ireland on Tuesday.

Strauss-Kahn said he was unaware of talks about an EU bailout of Ireland. He said Ireland’s difficulties had been caused mainly by one big bank and were very different from those of Greece, whose economy faces deep-seated competitiveness problems.

Ireland’s borrowing costs shot to record highs this week on concerns about its deficit and worries private bondholders could be forced to take “haircuts” on their holdings.

European Central Bank President Jean-Claude Trichet declined on Saturday to comment on the situation in Ireland, but said governments needed to step up budget tightening.

Going to the EU for aid would be a humiliating setback for a country that posted the highest average growth rate in the 16-nation euro zone in the bloc’s first decade of existence.

The financial crisis, weak banking regulation and a property bubble fueled by rock-bottom interest rates have combined to inflate its budget deficit to a projected 32 percent of gross domestic product (GDP) this year, by far the highest in Europe.

Ireland has accused Germany of aggravating its woes by pushing the idea of asset value reductions or “haircuts” for private bondholders in a future rescue mechanism from 2013.

Sources told Reuters on Friday that the German government had largely agreed on a plan that would include liability for private investors. It may discuss them with euro zone partners in Brussels on Tuesday.

In Dublin, politicians and newspapers fretted over the loss of economic sovereignty an EU bailout could bring.

Eamon Gilmore, leader of the center-left opposition Labour party, said Ireland needed to redouble efforts to solve its crisis and avoid being “pushed around.”

In an editorial entitled “In the last chance saloon,” the Irish Times said all paths were painful, but the only real option was to fight on to avoid losing sovereignty.

The Irish Daily Mail criticized assurances from Prime Minister Brian Cowen that Ireland was fully funded until mid-2011 and so did not need a bailout.

“There is an extremely large elephant in the room -- and that is the question: how are things going to be different by next July?” it asked.

Additional reporting by Bill Tarrant in Yokohama, Marc Jones in Tutzing, Andreas Rinke in Berlin, Terhi Kinnunen in Helsinki, writing by Philip Blenkinsop and Jan Strupczewski; editing by Tim Pearce

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