For the first time, the European Commission has hinted at a possible economic rescue for Ireland. The EU's economy commissioner said the bloc was in talks with the IMF on tackling problems in the Irish banking sector.
Banks in Ireland could use a few more Irish euro coins
The European Union on Tuesday announced it is in talks with the International Monetary Fund (IMF) and the European Central Bank (ECB)about taking on growing problems in Ireland's banking sector.
EU economy commissioner Olli Rehn said ahead of a meeting with eurozone finance ministers in Brussels that Ireland's banking crisis was "the most pressing problem" facing the monetary union.
Meanwhile, Luxembourg Prime Minister Jean-Claude Juncker, who headed Tuesday's talks by the panel of financial ministers known as the Eurogroup, vowed to protect the 16-nation euro currency.
Juncker urged that the Irish government would have to decide on financial aid, with inevitable strings attached, within days. However, he stressed that no aid could be given if Ireland did not request it.
"The discussions that will take place between Ireland and the [European] Commission and the ECB and the IMF will enable us to have at our disposal all the elements and instruments we need were Ireland to make a request for assistance to the EU, the IMF and the Europgroup," Juncker told reporters.
Euro 'not threatened'
Solvency concerns have grown in Ireland after a 45 billion euro ($61 billion) bailout for private banks increased its deficit in 2010 to 32 percent of gross domestic product.
However, Rehn also pointed out that the crisis in Ireland was limited to its banking sector, and that the government was "funded well until the middle of next year."
Rehn says Ireland's banking crisis is the eurozone's biggest problem
Rehn cautioned against alarmism, saying the Irish debt crisis was "not a matter of survival for the euro."
German Chancellor Angela Merkel repeated this assurance Tuesday evening, telling ARD public television she did not believe the eurozone to be in danger, but that the bloc was "experiencing turmoil and situations of the kind I wouldn't have dreamed of a year and a half ago," Merkel added.
Irish Prime Minister Brian Cowen meanwhile sought to dispel rumors in an address to parliament Tuesday that Ireland had already applied for an additional bailout for its banks.
"We have not applied to any facility. Despite the fact that it was being mentioned in a lot of so-called reputable news organizations does not make it any truer," Cowen said.
He said Ireland was discussing with the EU about ways to normalize market conditions and was attempting to ensure that any decisions were also in the interest of stabilizing the eurozone.
A financial crisis in Greece that similarly threatened the euro forced it to accept a rescue package on a larger scale earlier this year, which came with many conditions from the EU and IMF.
Waiting on Ireland
Ireland's banking problems are seen as a euro threat
Ireland's reluctance to accept a rescue package may be to avoid similar conditions in an effort to solve its banking crisis on its own.
However, newspaper reports in the country suggested Ireland was moving closer to a bailout as the EU piled on the pressure.
"To fend off being forced into a bailout for the entire State, Finance Minister Brian Lenihan is poised to agree to a bank injection to stabilize the euro and calm markets," the Irish Independent reported, citing an unnamed source.
Can't 'throw money from helicopters'
Meanwhile in a visit to Rome, Germany's Economy Minister Rainer Bruederle said "throwing money from helicopters" was not a solution to fixing economic problems.
The economic phrase refers to a practice where a government simply creates money until the economy gets going again.
Bruederle says money shouldn't be 'thrown from helicopters'
Bruederle said countries like Ireland or Greece should implement reforms to reduce deficits in order to eliminate the need for future bailouts.
"The European community as a whole has an interest in finding a way to have guarantees of a solution when there are difficulties," he said.
Meanwhile, the ECB is currently channeling about a quarter of its loans into Irish banks, and Ireland has put the figure required to save its financial institutions at around 50 billion euros.
Author: Matt Zuvela, David Levitz (dpa, AFP, Reuters)
Editor: Rob Turner