Tags: EU | Ireland | Aid | Spread | portugal

EU Officials: Ireland May Get Aid in Jan. as Woes Won’t Spread

Monday, 22 Nov 2010 11:01 AM

 

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Ireland may receive the first tranche of an emergency European Union aid package in January and its debt problems are unlikely to spread to other euro zone countries, EU officials said on Monday.

Eurogroup chairman Jean-Claude Juncker said the quick action taken on Ireland showed the determination of the single currency area's 16 member states to safeguard its stability, and other countries should be spared Ireland's problems.

But his comments failed to convince financial markets, which retreated on Monday on concerns that contagion could spread to other parts of the euro zone periphery, with Portugal seen as most at risk, and after the junior party in Ireland's coalition called for early elections and said it would pull out of government.

Markets had rallied initially after Ireland agreed in principle on a three-year bailout package with the EU and the IMF to salvage its shattered banks, but turned negative.

"I don't think any immediate contagion effect could be the case," Juncker told reporters. "The fact that we settled the Irish case indicates that we are taking financial stability and the cohesion of the euro area very seriously."

Juncker, who chairs the monthly meetings of euro zone finance ministers, said a plan for Ireland should be finalized by the end of November, with disbursements following early next year.

"We guess that the first money shipment (to Ireland) could be realized in the course of January," he said, confirming widespread expectations that the total package would not exceed 100 billion euros ($137 billion).

In Berlin, German government spokesman Steffen Seibert said the sooner Ireland received aid, the lower the chance of contagion.

Speaking in Brussels, the European Commission's monetary affairs spokesman, Amadeu Altafaj, said Portugal, which is also under pressure from financial markets, would not face problems similar to those of Ireland.

"There are no analogies to be made. The Irish case is very specific," he told reporters.

"In the case of Portugal, the banking sector is relatively healthy and it is resilient and it has proven (so) over the last months and so that makes it a completely different situation.

"Portugal has recently passed a very ambitious budget for 2011 in parliament, and that should enable the country to meet debt reduction targets," he added.

On Ireland, he said a team of experts from the Commission, the International Monetary Fund and the European Central Bank was expected to propose by the end of this month how much Ireland needed and what condition should be attached.

"They are in meetings all day long. There will be meetings over the next days. It is premature to speculate about figures," he said.

Altafaj also said tax increases may form part of the Irish government's plan to curb its budget deficit, but it is up to the Irish government to decide what taxes it needs to raise.

Some EU countries that will contribute to the Irish aid package have criticized its low corporate tax rate, which stands at just 12.5 percent.

Many are pushing for it to be raised.

"Commissioner (Olli) Rehn said at the end of September that, in the current circumstances, Ireland will cease to be a low taxation country and that unfortunately for Irish citizens they are likely to be part of the consolidation effort," he said.

"However this does not imply a view, a specific view of any targeted category of taxation, and it is now up to the Irish government to finalize the composition of the 4-year consolidation plan soon, containing measures both on the revenue side and the expenditure side."

© 2014 Thomson/Reuters. All rights reserved.

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