Portuguese finance minister warns crisis will spread across Europe
EU finance ministers set to meet today for emergency talks
Greece revises deficit up for a third time as it breaches bailout terms
IRELAND was under mounting pressure last night to accept a European or International Monetary Fund (IMF) bailout as both Portugal and Spain warned contagion from its crippled banking sector could spread.
Portuguese finance minister Fernando Teixeira dos Santos said his country faced the real danger of requiring a bailout from Brussels after Ireland confirmed it had begun preliminary talks over its debt problems.
“There is a risk of contagion. The risk is high because we are not facing only a national problem. It is the problems of Greece, Portugal and Ireland. This has to do with the Eurozone and the stability of the Eurozone, and that is why contagion in this framework is more likely.”
His comments sent the euro lower against the dollar, with German chancellor Angela Merkel raising the spectre of the euro collapsing as she warned: “If the euro fails, then Europe fails.”
Meanwhile, Bank of Spain governor, Miguel Ángel Fernández Ordóñez, a member of the European Central Bank, added to mounting pressure on Ireland to accept help telling a banking conference in Madrid that he expected an “appropriate reaction” by Ireland to calm markets.
Ordóñez said: “The situation in the markets has been negative due in some part to the lack of a decision by Ireland. It’s not up to me to make a decision on Ireland, it’s Ireland that should take the decision at the right moment.”
Both men were speaking ahead of a meeting of finance ministers, scheduled for today in Brussels to discuss the growing economic crisis.
Yesterday, Irish ministers continued to insist publicly that they did not require a European bailout to help meet the cost of repaying the country’s debts. Ireland’s Europe minister said such rumours were “very, very dangerous”. But he admitted: “There is continuous talk going backwards and forwards about the level of our debt but the suggestion that constitutes going to the IMF or a bailout is just irresponsible.”
And Irish minister for enterprise, trade and innovation Batt O’Keeffe, insisted the government had not discussed a bailout with the EU and had funding until mid-2011.
But Michael Noonan, finance spokesman of Ireland’s opposition Fine Gael party, piled on further pressure by suggesting the rumours that the government had already sought European help were true saying: “I think there is a European intervention underway.”
The Republic was also hindered by the revelation that Ireland’s banks received an additional €20bn (£17bn) in emergency liquidity funding from the Irish central bank between 27 August and 29 October. At the same time Irish banks have seen support from the European Central Bank jump to €90bn.
Portugal, Spain, Greece and Italy have all seen the spreads on their bond yields widen over the last month on the back of continuing uncertainty about Ireland’s financial stability. But the reports that Ireland was holding bailout talks with the EU helped ease pressure on Irish borrowing costs yesterday, with the yield on benchmark 10-year Irish bonds easing to 8.1 per cent from a peak of over nine per cent last week. The premium that investors demand to hold Irish 10-year bonds over benchmark German bunds also fell to 545 basis points, down from a record 652 basis points last Thursday.
The news came as the EU’s statistics agency Eurostat revised Greece’s 2009 deficit up for a third time, to 15.4 per cent of GDP compared with a previous 13.6 per cent estimate.
Greek Prime Minister George Papandreou said the country would stick to its deficit reduction programme but also warned Germany’s insistence on a future mechanism for banks and bond markets to share the pain of any Eurozone sovereign debt default from 2013 could break some EU economies.