Jose Manuel Barroso

The European Union is standing by to activate a $900 billion rescue fund for Ireland if the current pressure on the Irish economy continues.

The Irish Times is reporting that informal contacts have already begun between Brussels, Dublin and Berlin about the activation of the funds. Part of the conditions behind such a loan could well be the removal of Ireland’s low tax rate for multinational companies which currently stands at 12.5 per cent and its replacement by the EU wide rate of closer to 35 percent.

An EU bailout, backed by the International Monetary Fund, now seems more likely than ever given the fact that the interest on Irish borrowing jumped to  9.25 per cent yesterday making the country’s debt unsustainable in the long run. There are also major questions about the solvency of the banking system.

A series of negative articles in The New York Times and Wall Street Journal have highlighted Ireland’s weakness and led to a major gap emerging between Ireland’s interest on debt repayments and Germany’s.

Ireland’s position will be front and center at an EU meeting on Tuesday in Brussels.

With the euro  falling against the dollar, euro-zone finance ministers will urgently discuss Ireland’s position on Tuesday. 

In what seemed like a worst case statement European Union president Jose Manuel  Barroso.said “What is important to know is that we have all the essential instruments in place in the EU and euro zone to act if necessary.” 

Meanwhile  a commission spokesman told the Irish Times that  the European authorities are following the situation very closely. “There is no request for the moment. There is no need to activate any mechanism, Mr Barroso just confirmed that, in case of need, the mechanisms are in place,” he said.

Irish Minister for Finance Brian Lenihan admitted to grave concern.

“The bond spreads are very serious and there is international concern throughout the euro zone about that,” Mr Lenihan said.
However, he said the country could proceed without aid “We have the capacity to put the State on a sustainable and credible basis,” he claimed.