AGREEMENT AT an emergency meeting of European leaders this Thursday is vital to calm financial markets and break the “linking” between Ireland and other bailout recipients such as Greece, Tánaiste and Minister for Foreign Affairs Eamon Gilmore has said.
Speaking in Brussels yesterday, Mr Gilmore also said remarks by European Central Bank chief Jean-Claude Trichet provided further evidence that an Irish default on debt obligations was not a credible solution to the nation’s difficulties.
“There is a growing awareness in Europe that the debt crisis cannot be dealt with on a country-by-country basis . . . we need a comprehensive European solution,” he told journalists. “An overall European solution will give increased confidence to the markets. It will have a very stabilising effect.”
Despite some positive signs in Ireland’s export markets and gains in competitiveness due to falling wages, Government officials are concerned that ongoing turmoil in Greece is partially masking a nascent Irish recovery.
Mr Gilmore said an agreement on Thursday would help break this “linking” by market participants between EU-IMF “programme” countries. “We will be in an entirely different set of circumstances,” he said.
Doubts remain over the outcome of this Thursday’s European summit, however, with the ECB and Germany still at odds over the role of the private sector in a second Greek bailout.
In an interview published yesterday with the Financial Times Deutschland,outgoing ECB president Jean-Claude Trichet said he would not accept defaulted Greek bonds as collateral for loans.
“The governments would then have to step in themselves to put things right,” he told the newspaper.
The remarks highlighted the erroneous argument, supported by a number of influential economists, of the need for an Irish default, said Mr Gilmore.
“I know there has been talk around the place about default being offered by some as a potential solution to the problem. Let’s be clear, if there is a default the ECB will pull the plug. The Irish Government has always understood that that is the position.”
The risk of contagion between struggling euro zone states was highlighted last week when the Moody’s rating agency downgraded Ireland’s sovereign debt to “junk” status last week, amid growing market concerns about the stability of the single currency area.
The European Commission is among those to have since criticised the move as unjustified, amid renewed calls for a European ratings agency to break up the monopoly held by three US firms (Moody’s, Standard and Poor’s and Fitch Ratings).
“Obviously it would have to be done on an independent basis,” Mr Gilmore said, underlining fears that a European agency could be subject to political pressure. “European countries do need to look at the whole question of who determines the creditworthiness of countries. It is leaving European countries very vulnerable to have it determined by what are essentially private bodies.”
While Ireland still carries investment-grade ratings with rival agencies, Moody’s downgrade creates a further obstacle to the Government’s plan to exit the EU-IMF bailout programme and start borrowing from debt markets again next year.
At the same time, euro zone finance ministers agreed in principle last week on the need to reduce lending costs under the EU’s main bailout fund and extend repayment periods.
Despite this, Mr Gilmore insisted that Ireland would stick to its original timetable. “We are on track to do that. We are not going to deviate from that.”
