A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources have claimed, but experts warned a rescue may not be enough to prevent contagion in the single currency bloc.
The euro rose and the risk premium investors demand to buy Irish and other peripheral euro zone debt instead of benchmark German bonds narrowed in a sign of optimism that an aid deal for Dublin will be sealed soon.
But a poll of participants at a high-level banking congress in Frankfurt showed that nearly three quarters believed the crisis that has shaken the euro zone for a full year would rage on even after an Irish rescue and ensnare other financially weak countries such as Portugal.
"As long as the fundamentals don't improve, the pressure will continue on other countries too," Daniel Gros, who heads the Centre of European Policy Studies, told Reuters Insider TV at the congress. "The problem is that no problems are currently being solved. Many believe that the euro zone is just moving from one crisis to the next."
Ireland's central bank chief has acknowledged that the country needs a loan running into the tens of billions of euros to shore up an extremely fragile banking sector that has grown dependent on ECB funds.
Reflecting concerns among other euro zone periphery countries that Ireland's financial troubles could spread, Greece's finance minister pressed Dublin to move fast.
"We are now at a point where decisions have to be taken," George Papaconstantinou told the banking congress in Frankfurt. "Time is of the essence."
City A.M. Reporter