If this turns out to be true it amounts to a total reversal of all that Germany has always said.
Separately I have sent out an appraisal of Europe’s economies and their need for many of them for a bail-out. (“Running for cover”).
When Germany’s lending has been so weighted towards Eastern Europe where the crisis is at its worst why this conceern about Ireland ? Could it be that the German politicians are desperate to get that Lisbon Treaty ratified and want to make a demonstration of the benefits of EU membership to gain Irish voters’ consent? What a cynical thought!
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TELEGRAPH 18.2.09
Germany may rescue debt-laden EU members
Germany has acknowledged for the first time that it may have to rescue eurozone states in acute difficulties, marking a radical shift in policy by the anchor nation of Europe's monetary union.
By Ambrose Evans-Pritchard
Finance minister Peer Steinbruck said it would be intolerable to let fellow EMU members fall victim to the global financial crisis. "We have a number of countries in the eurozone that are clearly getting into trouble on their payments," he said. "Ireland is in a very difficult situation.
"The euro-region treaties don't foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty."
Credit default swaps (CDS) measuring risk on Irish debt rose to 386 basis points yesterday despite Berlin's show of support, suggesting that the markets remain sceptical over hard-line German financier's change of heart.
The CDS on Austrian debt surged to 180 on fears of banking contagion from Eastern Europe, while Greece, Belgium, Italy and Spain have all seen a surge in default costs.
However, it is clearly Ireland that is now in the eye of the storm as Dublin struggles to prevent the budget deficit spiralling up to 12pc or even 13pc of GDP as the economy contracts. Fears are mounting that Ireland may not be able to cover the massive liabilities of its banking system.
The Maastricht Treaty prohibits eurozone bail-outs by EU bodies but Article 100.2 allows for aid to countries facing "exceptional occurrences beyond its control". The European Investment Bank is already providing aid by steering project finance to regions in distress. This could be expanded subtly into short-term help.
Ultimately, the European Central Bank could purchase bonds from vulnerable countries in the open market. That would amount to a full monetary bail-out, and the de facto creation of an EU debt union. Such proposals have been anathema to Germany in the past.
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IRISH INDEPENDENT 18.2.09
Germany warns on Ireland's status but plays down risks
By Ailish O'Hora
The chance of the country defaulting on its debt is "remote" but Ireland's AAA rating may be downgraded as the State faces the worst slump in its history, rating agency Moody's warned yesterday.
The warning came as German Finance Minister Peer Steinbrueck said that Ireland, which is facing a widening budget deficit, is in "a very difficult situation".
Mr Steinbrueck's comments in Dusseldorf came in response to a question when he said that euro-region countries may be forced to bail out cash-strapped members of the 16-nation bloc.
"The euro-region treaties don't foresee any help for insolvent countries, but in reality the other states would have to rescue those running into difficulty," he added.
Meanwhile, Moody's, which changed its rating on Ireland from 'stable' earlier this year, said that while Ireland remains a creditworthy issuer, a default is an implausible scenario.
Dietmar Hornung, a Frankfurt-based analyst at Moody's said: "The outlook points to the likely direction of a ratings change." Ireland became AAA in May 1998.
Credit-default swaps on Irish Government bonds climbed to 386 yesterday from 378.5, according to CMA Datavision.
An increase signals a deterioration in the perception of credit quality.
The Department of Finance said yesterday that it is incorrect to draw conclusions about the "soundness of Ireland's public finances" from them as the "market is small and opaque".
The statement added: "It is generally used as a speculative tool by a small number of market participants to gamble on movements in the CDS market itself rather than to insure against default."
Ireland's debt rating outlook was cut by Moody's at the end of January.
The European Commission predicts budget shortfalls this year of 11pc of gross domestic product for Ireland, 3.7pc in Greece, 6.2pc in Spain and 3.8pc in Italy, compared with 2.9pc in Germany. The EU ceiling is 3pc.
The statement from the Department of Finance reiterated that Ireland is committed to restoring sustainability to public finances by 2013. With our debt at 41pc of GDP, it is below the EU average of 60pc.
JP Morgan Chase said in a note yesterday that EU rules don't "really constrain the ability of euro area countries to support one another during a period of exceptional stress. It's hard to imaging that the region as a whole wouldn't come up with a package of measures to support the individual economy". (Additional reporting by Bloomberg)
- Ailish O'Hora
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