Ireland's debt crisis triggers emergency talks
Wednesday, November 17, 2010
Ireland's debt crisis forced European officials into emergency talks Tuesday to try to contain the country's problems, as doubts surfaced about how an international fund established this year to help beleaguered European economies would work in practice.
Irish Prime Minister Brian Cowen acknowledged that his heavily indebted nation can no longer afford to borrow on world markets because it must pay such high interest rates, but he continued to insist that Ireland did not need a bailout. European officials, who were trying to hammer out a package of emergency assistance for Ireland, said they were fighting for the future of the European Union.
The latest turbulence highlights the apparent weakness of efforts taken in response to a similar debt crisis in Greece six months ago, which were aimed at reassuring investors that Europe's weakest economies would be protected from default. The $1 trillion fund set up in May by the Europeans and the International Monetary Fund was designed to calm fears that could unsettle world financial markets and undermine the global economic recovery.
Renewed concerns drove European markets down Tuesday and contributed to a sell-off on Wall Street, with the Dow Jones industrial average losing 1.6 percent.
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. European Union Council President Herman Van Rompuy warned of "a survival crisis" for the currency union and the E.U.'s broader experiment in economic and political integration.
E.U. economic affairs chief Olli Rehn confirmed that Ireland was in crisis talks with the European Central Bank, the European Commission and the IMF. The IMF said it was sending a team for a "short and focused consultation" at Ireland's invitation.
With the economic recovery flagging, U.S. Treasury Secretary Timothy F. Geithner called on European leaders to take urgent action.
"You want to make sure you move very, very quickly and you have a combination of policy reforms that help resolve the underlying problem, with some temporary financial support to help countries manage through them," Geithner said at a symposium sponsored by the Wall Street Journal.
Although Ireland is a small economy, economists warn that banks and other firms that have lent it money could be endangered if it cannot make scheduled payments. This could unsettle the financial system beyond the country's borders.
Bank of England Governor Mervyn King, for instance, warned that Britain's "overall exposure to the Irish economy is by no means trivial." He said troubles in Ireland could undercut already weak growth in Britain, the world's sixth-largest economy and home to a number of major world financial firms.
These concerns about financial contagion are more muted than was the case with Greece. Ireland has enough cash on hand to pay its bills through the middle of next year, while Greece was facing a deadline to refinance part of its debt and was struggling to raise the money it needed.
U.S. officials said they saw little risk directly from Ireland for the U.S. financial system, because American banks and other firms are not heavily invested in Irish government bonds or the country's economy. But economic upheaval in Europe could still help snuff out an anemic recovery in the United States.