Ireland's problems threaten the entire eurozone
Published 13/11/2010 | 05:00
THE South Korean capital of Seoul may be almost as far as it is physically possible to travel from Ireland but that didn't stop this country's financial crisis from hijacking the meeting of the G20.
Just when the leaders of the world's 20 biggest economies thought they would be discussing global trade and exchange rates, up popped Ireland and the threat it poses to the stability of the eurozone.
In an unprecedented move the finance ministers of Germany, France, Italy, Spain and the UK -- all of whom were attending the G20 meeting -- were forced to issue a statement, saying that German Chancellor Angela Merkel's plan that the cost of any future bailout should be borne more by private investors would not be put in place until after 2013.
The leaders also made it quite clear that funds were available to support Ireland if requested.
While the statement eased the pressure on the Irish Government, with bond yields falling from as high as 9.26pc on Thursday to "only" 8.47pc yesterday, market observers spent the day claiming that any respite for this country was likely to be purely temporary.
And temporary it was. At tea-time yesterday, news agency Reuters carried a story claiming that Ireland was "in talks to receive emergency funding from the European Union".
This sparked an immediate denial from our own Department of Finance. So did Reuters get it completely wrong or are we arguing over semantics?
It's almost certainly the latter. On Thursday, EU Commission President Jose Manuel Barosso, in what was widely seen as an invitation to Ireland to apply to the bailout fund, said: "The EU is ready to support Ireland."
It's not difficult to surmise that while Ireland may not have made any formal application for assistance from the European Financial Stability Fund, there is at least some plausibly deniable tick-tacking going on.
Yesterday market traders were saying that it would be prudent for the Government to have an EU backstop in place before it goes back to the market. Ironically, this would provide confidence to the market as the bond traders would have plenty to gain if their bonds were to be repaid in full with EU money as they fall due.
While we may not yet have reached the stage of an official application followed by formal negotiations, it's not unreasonable to assume that Irish and EU officials have -- hypothetically, of course -- been exploring the mechanisms available to help Ireland resolve the crisis.
The EU is extremely concerned by the worsening Irish crisis and wants to see it sorted out before it spreads to other eurozone countries.