DUBLIN (Reuters) - EU Economics Commissioner Olli Rehn said on Monday he had not discussed any need for a European Union bailout with Ireland, adding he believed market confidence would be restored once the country published its four-year plan to cut debt.
“Ireland has not requested the activation of any European financial backstops, we have not discussed this matter this evening. We have discussed the four-year fiscal plan and the next year’s budget,” Rehn told a news conference.
“Once the government specifies the consolidation measures in the forthcoming four-year fiscal plan, this will provide the necessary clarity for the future fiscal sustainability both to the people and to the markets.”
Rehn, on a two-day visit to Dublin designed to bolster Irish efforts to lance the worst budget deficit in the European Union and convince markets it does not need a Greek-style bailout, has already welcomed Ireland’s plan to slash its deficit.
But investors remain wary of buying Irish assets given Germany’s determination that bondholders will foot a greater share of future bailout bills, meaning Dublin could struggle to raise, and ultimately repay, money on bond markets next year.
The premium investors demand to hold Irish debt over benchmark German bunds hit new highs on Monday, extending a month-long climb that has seen Irish borrowing costs repeatedly breach records. The yield on Irish 10-year bonds hit 8 percent for the first time.
Irish finance minister Brian Lenihan told the joint press conference with Rehn that markets would not be able to digest his four-year fiscal plan next week, as expected, but would have to wait until later this month.
Rehn said that taking the necessary structural measures should pay off in the medium term, but Ireland needed to be ready to take more action if necessary.
Ireland is targeting spending cuts and tax hikes totalling 6 billion euros next year — some 40 percent of the 15 billion euros in adjustments it plans between now and 2014 — but some analysts have questioned the projections they are based on.
“It is important that there is the sufficient flexibility if needed in case the growth scenarios will not materialise as expected,” Rehn said.
Brussels is anxious to ensure that an Irish financial crisis will not destabilize the euro and Rehn will meet with government officials, opposition leaders, trade unions and employers’ groups to impress upon them the need for a tough budgetary line.
With a parliamentary by-election later this month likely to cut the government’s majority to just two, Prime Minister Brian Cowen needs to keep his own and independent MPs and coalition partners on side to push through the worst austerity budget on record.
But he could struggle given the threat of an early general election next year and an ugly mood among recession-weary taxpayers: junior coalition party the Greens reiterated on Monday that the state old-age pension could not be cut.
The main opposition party, the centre-right Fine Gael party, said on Sunday it would not back next month’s budget but Rehn urged all parties to support the planned cuts.
Additional reporting by Carmel Crimmins; editing by Jodie Ginsberg, Gary Crosse