Irish debt talks continue in hopes of avoiding broader euro crisis

The 16-nation euro currency zone is beset by fissures between strong economies such as Germany and weaker ones such as Greece, Ireland and Portugal, which risk being engulfed by historic levels of government debt.
By Howard Schneider and Anthony Faiola
Washington Post Staff Writers
Wednesday, November 17, 2010; 9:48 PM

As European officials debate a possible bailout of Ireland and replay a crisis script followed earlier this year in Greece, they are also worried about a more pressing question: Can they prevent a series of financial emergencies from tumbling like dominos across the continent?

Portugal, Spain, Italy, Britain and other European countries are facing record deficits and rising public debt, and struggling to convince the market that they can control those shortfalls, restructure their economies and restore growth.

But the investor mistrust that forced Greece to seek emergency help last spring and that now weighs on Ireland can be infectious. The International Monetary Fund and analysts elsewhere have warned that the wheel may well turn - with potentially catastrophic impact.

Greece and Ireland are relatively small economies, as is Portugal, considered by some analysts as a likely candidate for a bailout in the future. But a crisis in Spain, Italy or Britain - all much larger - could deal an even greater blow to global financial markets.

The IMF warned in an October report that markets "are becoming more polarized," with investors willing to quickly abandon a country if they lose faith in its ability to pay its bills or meet its goals for spending and economic growth. The IMF said European and other advanced economies had not spelled out credible plans for controlling record levels of public debt.

With investors on a short fuse, further crisis in one or more of those strapped economies is "almost certain," the agency said.

The possibility of crises spreading to ever-larger European nations has added urgency to the current negotiations.

Britain's top finance official, Chancellor of the Exchequer George Osborne, said Wednesday that his country would help prop up Ireland's ailing finances - even as a team from the IMF and European Union prepared to travel to Dublin to address the crisis and the Irish government signaled, for the first time, that it might be willing to accept a bailout. The talks center on a possible $100 billion fund that Ireland could tap, possibly in support of its troubled banking system.

In Brussels, where European financial chiefs have been holding talks, Irish Finance Minister Brian Lenihan said a "short, focused consultation" with IMF and European Union officials in Dublin this week may result in international support for the Irish banking system.

Ireland's banks are being scrutinized anew as part of the discussions. The Irish government has already nationalized the Anglo-Irish bank and spent tens of billions of dollars suppoting the rest of the banking system and taking over troubled real estate loans.

It's not clear how much more help the Irish banking system might need and whether the Irish government can provide help on its own.

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