Irish Prime Minister Brian Cowen.CATHAL MCNAUGHTON
There are no obvious solutions to Ireland's problems and the country will deal with them in its own interests, Irish Prime Minister Brian Cowen told national broadcaster RTE Wednesday.
"There are sensible, precautionary discussions taking place at the moment. We're working collaboratively with people, I don't think we should see this as a threatening situation," Mr. Cowen told RTE in an interview.
"There are no obvious solutions here until we work out what's best for the country. It's urgent, we accepts it's urgent and we need to deal with it. We will deal with it in our own interests as well."
Mr. Cowen's comments came after Ireland agreed to work with a European Union-IMF mission on urgent steps to shore up its shattered banking sector, a process that could lead to a bailout despite Dublin's deep reluctance.
A team from the European Commission, the International Monetary Fund and European Central Bank will travel to Ireland Thursday to examine what measures may be needed if Dublin decides to seek aid, euro zone finance ministers said.
Mr. Cowen emphasized that the mission would look at what assistance Ireland might require, again rejecting suggestions his government was discussing a bailout.
"What we want to concentrate on now is in a focused way, over coming days, to sit down and see in what way can assistance be provided to ensure that these issues can be dealt with properly and appropriately," he told parliament.
"There has been no question of the government ... (being) in a negotiation for a bailout," he said, dismissing the term as pejorative.
The EU's commissioner for economic affairs, Olli Rehn, said the EU-IMF team would work intensively with Ireland "to determine the best way to provide any necessary support to address market risks, especially as regards the banking sector".
"This can be considered as an intensification of the preparations for a potential program if requested by the Irish government and deemed necessary by the euro area member states," he told reporters after the finance ministers' meeting ended.
Irish Finance Minister Brian Lenihan said euro zone peers had welcomed his four-year, €15-billion budget-cutting strategy that he hopes to publish next week, suggesting he sees no need for further fiscal tightening.
But he admitted the banking sector needed help.
"What may be required may not in fact be an actual transfer of money now but demonstration of how much money can be made available if further difficulties materialize," he said.
Ireland has said the bill for bailing out its banks could top €50-billion but investors fear the final figure could be even higher given rising residential mortgage arrears, deposit outflows and higher funding costs.
Financial markets appeared unimpressed by Dublin's decision to reject sovereign assistance, with the premium investors charge for holding Irish 10-year bonds rather than German Bunds holding at a near-record 575 basis points.
LCH.Clearnet, a clearing house for sovereign debt, doubled its margin requirement on Irish bonds to 30 per cent of net positions, an indication of the increased risk of default.
Underlining the fear that Ireland's problems could spread, Portugal's borrowing costs soared at a treasury bill auction, with yields for 12-month paper jumping more than 150 basis points from a tender earlier this month.
Mr. Lenihan dismissed suggestions that Ireland should raise its ultra-low 12.5 per cent corporation tax rate to help cut its debt. Higher-tax countries, including Britain, have long seen the Irish rate as a form of unfair competition.
"Of course our corporate tax rate is safe," he said.
But the euro zone is acting tough with Athens - on Tuesday ministers told Greece to cut its spending further to meet budget deficit reduction targets agreed as part of its bailout - and could attach stringent conditions to any Irish aid.
While Ireland made no request for immediate EU rescue, resisting pressure to follow in Greece's footsteps, economists said a state bailout remained a probability even though its public borrowing needs are funded until mid-2011.
"Will Ireland dig its way out of this hole without support?" said Commerzbank's Peter Dixon in a research note.
"Alas probably not, because it has lost market confidence ... In the absence of measures to restructure the banking debt, we see a high probability that Ireland will ask for European Financial Stability Facility funding early next year."
EU sources have told Reuters Ireland may need assistance of between €45-billion and €90-billio, depending on whether it needs help only for its banks or for public debt as well.
Euro zone sources said there was an agreement in principle to trigger aid when the joint mission completes its work - perhaps in days - and the aid would not be just for the banks.
Irish banks, pushed to the brink by the financial crisis and a property collapse, came under further downward pressure, with shares in Allied Irish falling anew. They have lost 70 per cent of their value this year.
The bank, which will be more than 90 per cent owned by the state following a rights issue later this year, will issue a trading statement later this week.
The country's largest lender Bank of Ireland signalled last week that it had seen a €10-billion outflow of deposits from early August until the end of September.
But Bancassurer Irish Life & Permanent said on Wednesday it was confident Irish banks would be adequately capitalized to deal with any downturn in the nation's residential mortgage market.
After Greece's near collapse, the stakes are high. European Council President Herman Van Rompuy, who heads the body that groups the EU's 27 national governments, said the EU's future could be at stake, although others played down those risks.
Britain, whose banks have around $150-billion of exposure to Irish debt, said it stood ready to help, although it was unclear what steps it might take to assist Ireland.
"Ireland is our closest neighbour and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system," Chancellor of the Exchequer George Osborne said.