GERMANY:BERLIN HAS strenuously denied weekend reports that it was "pressing" Ireland to accept a bailout from the euro zone rescue fund.
Amid growing speculation that such a deal is imminent, senior German sources insisted there was no contact, formal or informal, between Berlin and Dublin over the weekend.
“It is not helpful to speculate at what stage we find ourselves,” said finance ministry spokesman Martin Kreienbaum in reaction to yesterday’s Bloomberg report. “Germany is not playing any special role in this and we can say no more at this stage.”
Despite official denials, German officials admit they were rattled by market volatility last week, when analysts failed to distinguish between talk of so-called “haircuts” on sovereign bonds in the post-2013 euro zone rescue regime and the current system, which carries no such risk.
Rather than risk further instability and confusion every time EU leaders discuss plans for the permanent rescue fund, it seems some in Berlin would rather see Ireland accept a bailout now.
This concern means Ireland is likely to feature prominently in this morning’s address by Chancellor Angela Merkel to the annual conference of her Christian Democratic Union (CDU).
This year’s meeting takes place in Karlsruhe, a stone’s throw from the constitutional court, which some German legal experts suggest may rule illegal German participation in the current euro-zone rescue fund next year.
Resistance by Dublin to accept outside assistance could jeopardise a permanent euro-zone rescue structure, an unnamed German official told Bloomberg yesterday. Scheduled to operate from 2013, this permanent structure would require private investors to accept write-offs on their sovereign bond investments in distressed countries.
As the lights burned late in Berlin’s finance ministry yesterday evening, senior government officials said they were concerned about facing into another week of market speculation about Ireland’s future finances.
“The problem must be objective and rational before politics reacts,” said one government source, adding that financial markets were “anything but” rational at the moment.
“We cannot say what tomorrow will bring but you’ll find no one here who will confirm or deny anything. Any contact will be through Brussels.”
In widespread weekend coverage in Germany of Ireland’s situation, estimates of the size of a possible bailout for Ireland veered from €40 to €90 billion. Analysts suggested that the instability in Germany is down to conservative guidelines of pension fund managers, which allow them to hold only low-risk papers.
Holger Schmieding, chief economist of the Berenberg Bank, said there was no justification for a return of almost 9 per cent on Irish sovereign bonds.
“Ireland has better chances than Greece of pulling itself out of the swamp,” he told the Frankfurter Allgeineme newspaper. “A good 4 per cent would be more like it.”