THE Irish government yesterday continued to deny that the country is insolvent, but admitted that “ongoing contacts” continue with international officials “in light of current market conditions”.
The admission from the Ministry of Finance yesterday marks a striking shift of tone from earlier statements which dismissed reports that Ireland was discussing a bailout package.
Justice minister Dermot Ahern told RTE News earlier in the day that media stories suggesting that talks had begun over a rescue worth €60bn-€80bn (£51bn-£68bn) were “a fiction”. “There are no negotiations going on. If there were, the government would be aware of it and we are not aware of it,” he claimed.
The finance department has also stated that Ireland has enough funding to last “well into 2011”, meaning it will not have to borrow at current yields of 8.1 per cent on ten-year gilts.
But economists are sceptical that an austerity budget next month can solve the republic’s debt crisis, even if it is funded for now. Official estimates suggest that its deficit will soar to an eye-watering 32 per cent of GDP this year and the government has refused to deny that it might need rescuing.
If Ireland does need help, the British taxpayer could be on the hook for up to £15bn under a deal signed by Alistair Darling just before the formation of the coalition government.
The republic is under huge pressure internationally to announce that it will seek a bailout before the meeting of Eurozone members tomorrow, in part from larger members of the single currency. The 16 countries are due to discuss reforms of the European Financial Stability Facility, a bailout fund created after Greece’s international rescue.
Attempting to calm the markets, Germany denied that it is pushing for Ireland to accept a bailout in order to stabilise the Eurozone and enable a freer discussion of sovereign debt crises at tomorrow’s meeting.
But it was German chancellor Angela Merkel’s remarks that private bondholders should accept a “haircut” on their investment if a country defaults that sent Irish ten-year gilt yields to nine per cent on Thursday.
Whatever bailout plans the Eurozone adopts should not come into effect until 2013, but this has not stopped bond yields rising across the Eurozone periphery. Portuguese ten-year yields hit seven per cent and Spanish hit 4.6 per cent on Thursday.
Ireland is fighting vehemently to avoid a bailout, with O’Keeffe admitting that it would mean giving up its “hard-won sovereignty”.