European Chancellors calm nerves on Irish bailout reports

Leading eurozone countries today moved to calm nerves over a possible European Union bailout of Ireland.

Dublin has been a hot topic at the G20 summit in Seoul after market jitters about a possible debt default pushed yields on Irish 10-year bonds up beyond 9%.

There had been concern in the markets over German moves to force private investors to bear a share of the burden in future bailouts of countries in fiscal crisis.

But a joint statement released by Britain, France, Germany, Italy and Spain made clear that “any new (bailout) mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements”.

UK Chancellor George Osborne said: “We should support the Irish Government in the steps that it is taking.”

The statement by the ministers effectively means that Europe will not be enforcing losses on private investors holding Irish bonds before 2013.

Finance Minister Brian Lenihan said he welcomed the solidarity shown by Ireland’s EU partners and the G20.

“The clarity provided by the EU finance ministers of the G20 is most welcome,” he said.

“The statement makes it clear that any potential private sector involvement in that mechanism does not apply to any outstanding debt and any programme under current instruments.

“Any new mechanism would only come into effect after mid-2013. So this would have no impact whatsoever on the current arrangements.

“Our EU partners have confirmed their full confidence in the budgetary strategy being pursued by the Government.”

German Chancellor Angela Merkel also clarified that her comments on sovereign defaults did not relate to any current bonds, and would not apply until after 2013.

Communications Minister Eamon Ryan said that he is "very confident" the political system in this country can manage our Budget situation.

The Irish State's cost of borrowing has slowly began to fall this morning.

The statement in full issued by finance ministers George Osborne of the UK, Christine Lagarde of France, Wolfgang Schauble of Germany, Italy’s Giulio Tremonti and Spain’s Elena Salgado:

“At its meeting on 29 October 2010, the European Council discussed the future arrangements for ensuring economic and financial stability in the European Union.

“Whatever the debate within the euro area about the future permanent crisis resolution mechanism, and the potential for private sector involvement in that mechanism, we are clear that this does not apply to any outstanding debt and any programme under current instruments.

“Any new mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements.

“The EFSF (European Financial Stability Facility) is already established and its activation does not require private sector involvement.

“We note that the role of the private sector in the future mechanism could include a range of different possibilities, such as a voluntary commitment of institutional investors to maintain exposures, a commitment of private lenders to rollover existing debt or the inclusion of collective action clauses in future bond emissions of euro area member states.”