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UK pledge to help Ireland through debt crisis

world Updated: Nov 18, 2010 11:33 IST

UK's finance minister, George Osborne, pledged Britain's support to Ireland to help it restore stability to its banking system on Wednesday, as financial squads from the International Monetary Fund, European Central Bank and EU prepared to be parachuted into Dublin.

"We're going to do what is in Britain's national interest," Osborne said, as he joined other European finance ministers for a crunch meeting in Brussels.

"Ireland is our closest neighbour and it's in Britain's national interest that the Irish economy is successful and we have a stable banking system. So Britain stands ready to support Ireland in the steps that it needs to take to bring about that stability," he added.

Osborne arrived in Brussels on Tuesday night, amid mounting speculation that the UK would be expected to contribute at least 7 billion pounds to any Irish bailout. There were also suggestions that Britain would extend bilateral loans to stabilise Ireland's banking system.

Ireland's discussions with the EU and IMF experts will begin on Thursday, Irish finance minister Brian Lenihan said. He pledged to work with the EU-IMF team on steps to sort out Ireland's struggling banks.

"What's here now is a common determination that we work on these difficulties that work is well under way." He added, "Our budgetary policy has full confidence among European partners. But in relation to banking, steps taken to date require further support. What may be required may not be in fact an actual transfer of money now but a demonstration of how much money can be made available if further difficulties materialise."

He also added, "In relation to the position of the United Kingdom, that's a matter for the United Kingdom, in general the UK has not participated in European Union-wide assistance, but I know that the British authorities are anxious to ensure any help that Ireland needs will be given."

He tried to quell panic, saying that bank deposits were safe and repeating that the EU stands "shoulder to shoulder" with Ireland. The financial markets took little comfort from Lenihan's comments.

The premium investors charge for holding Irish 10-year bonds rather than benchmark German bunds remained at crisis point, at around 570 basis points.

LCH Clearnet, a European clearing house for sovereign debt, doubled its margin requirement on Irish bonds to 30% of net positions, an indication of the increased risk of default.

The cost of insuring Irish debt against default jumped again - Irish five-year credit default swaps widened from 520 to 545 basis points.

Those for Spain and Portugal also rose. Portugal managed to sell all EUR 750 million of 12-month treasury bills at an auction today, but the yield rose sharply to 4.813 per cent from 3.260 per cent at the previous auction two weeks ago.

There was also less interest. The stock market in London was flat this morning. The FTSE 100 index edged up 2 points to 5684 after it yesterday suffered its worst one-day points fall since the end of June.

The euro traded close to a seven-week low against the dollar, down 0.12 per cent at $1.3475, not far from the seven-week trough of $1.3446 hit yesterday.

Irish prime minister Brian Cowen told MPs in Dublin on Tuesday that the country did not need international assistance - estimated at as much as EUR 100 billionn - to support its banks.

In Brussels, Lenihan said Ireland was "fully funded until the middle of next year", adding that the markets are "not being good to Ireland".

Greece was unperturbed by news that its next allocation of bailout cash will be delayed. It insisted it would face no cash problems from the delay to the third payment of an EU-backed bailout loan from December to January.

"Regarding the payment of the third tranche coming from eurozone countries the process requires at least 10 working days and for this reason the disbursement will be completed in early January," the Greek finance ministry said. "This has been agreed a long time ago with the European commission and creates no cash problem at all for our country."

However, the Austrian finance minister claimed the delay was due to Greece not fully meeting its fiscal targets under the bailout deal. Greece was due to get EUR9bn in EU and IMF loans in December as part of the EUR110bn bailout to stave off bankruptcy.

The IMF portion of EUR2.5bn is still expected to be paid out as planned in December.