PARIS (MNI) – The Irish government Sunday resisted growing pressure
from senior EU officials and the European Central Bank to formally
request financial aid, as late night talks ended with no action taken,
the Financial Times reported on its website.

Irish ministers publicly declared that they were committed to
weathering the storm without going to their European partners cap in
hand. “We must show clearly that Ireland can stand alone and it is
determined to get out of the financial difficulties we are in,” Batt
O’Keeffe, Irish enterprise minister, said on local radio, according to
the FT.

Irish officials have stressed numerous times that they have a cash
cushion of over E22 billion and won’t need to go back to the market
until mid-2011 to meet their financing needs. But the sharp widening in
Irish spreads last week to a new euro-era high rattled the nerves of
many officials, both in Ireland and outside of it, and raised concerns
in some capitals about contagion effects on other weak Eurozone nations.

Patrick Honohan, the Irish central bank governor, declared that
borrowing rates on Ireland’s sovereign securities were now “well above
the rate at which one would go back in [to the markets].” The current
trend, he said, was “unsustainable.”

Portuguese bonds were also hammered in the markets last week, and
the effects of rising yields and wider spreads against the benchmark
German Bund began to spill over into Italy and Spain as well.

Peripheral EMU bonds finally got a respite later in the week after
five EU finance ministers put out a statement from the Group of 20
summit meeting in Seoul assuring investors that official talk of
requiring private creditors to contribute to bailouts was something for
the future and would not affect current bondholders.

But few people expected the market calm to last. There were
numerous press reports over the weekend saying that European officials
were holding informal talks to decide whether Ireland should get an aid
package similar to the one granted to Greece last May in order to calm
markets and minimize the growing risk of contagion to other vulnerable
Eurozone countries such as Spain and Italy.

At one point in the talks this weekend, the question was raised
whether an Ireland aid announcement might be needed to ease tensions
before markets opened Monday.

The FT quoted an anonymous official familiar with the discussions
who wondered: “Can they get through the markets on Monday?”

The Wall Street Journal reported late Saturday that officials at
the ECB were advising Ireland that if it tapped the EU’s E500 billion
emergency loan facility, it would have an easier time implementing a
credible budget and recapitalizing its deeply troubled banking system.
In that case, Ireland would also have access to an International
Monetary Fund standby facility for EU members, which totals E250
billion.

According to the Journal, the ECB’s view is that IMF and EU
oversight of Ireland, which would be required if the country took
emergency funds, would help bolster the credibility of Dublin’s
austerity plan, intended to slash its public deficit from a staggering
32% of GDP this year to 3% by 2014. The Irish government is due to
unveil its budget blueprint to parliament on December 7, but ECB
officials worry that may be too long to wait given the deterioration in
financial markets and the threat of contagion, the newspaper said.

Meanwhile, Germany’s Welt am Sonntag newspaper reported that Spain
and Portugal were pushing for an Irish rescue package out of fear that
they would come under pressure if the situation in Ireland were not
dealt with effectively.

Germany was also said to be pushing for Ireland aid, but according
to the FT, German officials “categorically denied” this.

Despite the Irish resistance to being bailed out, the press reports
quoted officials saying there would be talks in Brussels this week on a
possible package. According to some of the officials, an Irish bailout
is no longer a question of if but only of when.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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