Ireland - Europe

EU rescue chief calls for calm

Reuters/Cathal McNaughton
6 min

There is no danger of the money running out, even if the Irish debt crisis spreads to other eurozone nations, the head of the European Union's multi-billion dollar rescue fund said Thursday.

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"The safety umbrella would be big enough for everyone" said Klaus Regling. "The fact is that only Ireland has asked for help."

Graham Bishop, London

There have been fears of contagion in other eurozone nations such as Portugal and even Spain.

“If the Irish situation doesn’t resolve there will be a flow onto the rest of the eurozone, or at least a risk of it,” says analyst Graham Bishop. “The first problem is that the Irish banks are at the core of this crisis and there’s still no new clarity on the scale of their losses.”

Meanwhile, Germany's Central Bank chief, Axel Weber, said Wednesday that European efforts to tighten budget discipline should be considered the absolute minimum necessary to safeguard against future debt crises.

Weber, who is tipped to become the next European Central Bank chief, also backed German Chancellor Angela Merkel in her desire to make investors contribute to the costs of any future bailout.

But he stressed that any such mechanism should only be set up after the current crisis has ended.

Ireland unveiled a 15-billion-euro austerity package on Wednesday, a condition to benefit from a 90-billion-euro international rescue package. But Dublin resisted French and German pressure to raise its low corporate tax, which some other EU countries feel gives Ireland a competitive edge.
 

In June, the Irish banks passed a Europe-wide bank stress test, but three months later they had to write-off more of their assets when they revealed how the extent of their toxic debts.

The Irish government last year created a bad bank called Nama, which is designed to absorb toxic debts. But the banks transferred so many of their assets to Nama that they are now losing their deposits to maintain cash flow.

“Is this money from the rest of Europe simply going to be put into a bottomless pit, do we know how big the pit is? Nothing has changed on that,” says analyst Graham Bishop. “The Irish government’s own budget is almost a side issue until we know how bad the banking problem. We can’t know at the moment.

"What is the value of a half-built hotel where there are no tourists? What is the value of a housing estate where the people you hoped would live there are emigrating?"

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