Bonds boost as Europe’s big five back Government

A BATTERED Irish economy has enjoyed some respite on the international markets, after Europe’s five biggest economies overcame internal resistance to offer critical support to the Government’s borrowing plans.

However, despite the first positive day of trading this month, Taoiseach Brian Cowen was still forced to quash rumours that the Government had begun talks to access Europe’s emergency stability fund.

Mr Cowen said this was not true and did not arise because the country would not need to borrow more money until well into 2011.

The Taoiseach’s denial came as Reuters yesterday claimed Eurozone sources had revealed that talks had taken place about Ireland tapping into the European Financial Stability Facility and it was “likely” to become the second Eurozone country after Greece to obtain an international rescue. Also, RTÉ last night said it understood there had been a “number of ‘technical’ discussions on a ‘what if’ basis concerning Ireland’s sovereign debt crisis and the EU bail out fund”.

Yesterday marked the first time in two weeks that the price traders placed on Irish debt fell, giving the Government an opportunity to redirect focus on its immediate budget plans.

After hitting an unprecedented high on Thursday, the sell-off of Irish debt eased when Europe’s powerful players assured existing investors they would not have to carry the can for an Irish bailout.

The market’s reaction to the solidarity statement, issued by Germany, France, Britain, Spain and Italy at the G20 summit in South Korea, was immediate.

Also in South Korea the International Monetary Fund confirmed it had not had any discussions with Irish authorities about potential assistance.

Finance Minister Brian Lenihan welcomed the actions of the five governments to bring clarity to the situation and reassure the markets that those who bought Irish bonds would get all their money back.

He said the country had not applied or inquired about availing of support through Europe’s emergency stability fund. And he said it would not make any sense for Ireland to seek the protection of the fund at this stage because it did not need to borrow more money until next year.

“The country is not in a situation when it is required in any way to apply for the facility. Why apply in those circumstances?”

The critical intervention came after discussions between the European players in South Korea. These took place as Mr Cowen suggested recent talk in Germany about burden sharing had not been helpful.

At the end of October Ms Merkel sent jitters throughout the markets by suggesting private bond holders may have to share the cost of any Irish bailout.

She came under pressure from Ireland and other troubled countries in recent days to clarify that this would only apply to future debt arrangements, specifically beyond 2013.

In the North, Commissioner Máire Geoghegan Quinn defended the German Chancellor.

She said Ms Merkel was speaking for a sovereign country, she had her own constituency to appeal to and was entitled to make her views known publicly.