Brussels: The head of the European Union warned on Tuesday that the 27-nation bloc will not survive if it fails to overcome a debt crisis plaguing euro currency governments.
Hours from a meeting of finance ministers in Brussels to grapple with an exploding debt crisis that has already brought Greece to its knees, and now threatens Ireland and Portugal, Herman Van Rompuy said that the EU and eurozone were in danger from alarm on financial markets.
“We all have to work together in order to survive with the eurozone, because if we don’t survive with the eurozone we will not survive with the European Union,” he said in a speech.
He said he was “very confident” the EU would overcome the crisis, thanks to “courageous measures” taken by states “to reduce expenses at a time of populism, despite massive protests on the street and knowing they risk electoral defeat.”
Van Rompuy’s stark warning raises the stakes after an admission by Ireland that it was holding talks about a possible rescue, six months after international partners had to rush to aid Greece with a €110 billion bailout.
Portugal has also warned that it is at “high” risk of needing financial support, unable to borrow money on open markets other than at prohibitive rates, partly because tension over Ireland is increasing pressure on other weak eurozone members.
Greek Prime Minister George Papandreou, also facing new problems over conditions attached to the rescue for Greece, has said he has support from French President Nicolas Sarkozy to re-schedule bailout repayments.
The three countries are only the weakest links in a chain of debt coursing through the 16 nations that share the euro currency, with almost every other member of the European Union bursting at fiscal seams.
Ireland “is under pressure from some other EU politicians and even the ECB to consider requesting funds to provide further reinforcement for its banking system and so reduce contagion risks,” said Julian Callow of London-based Barclays Capital Research.
He said that from the European Central Bank’s perspective, a €440-billion European Financial Stability Fund “can be used to support banks, provided that the funding is requested by governments and channelled via them.”
Despite an EU official telling AFP exactly the opposite on Monday, stressing that the loan guarantees are not available for banks, Callow warned that “Ireland has the biggest skew in terms of requesting ECB financing,” signalling €130 billion of demands on the Irish central bank in October.
Analysts expect the ECB to announce “further steps towards normalization of its money market operations” at the start of December, Callow added.
Ireland’s public deficit this year is set to pass 30% of GDP, 10 times the permitted EU limit and double last year’s Greek deficit.
Its plight -- which stems from Irish banks’ massive over-exposure to busted property markets -- is causing consternation among those who would have to guarantee rescue loans.
While drawing up massive new spending cuts to be announced within weeks, Ireland has sought desperately to resist the onslaught from euro doubters.
“Ireland is making no application for the funding of the state because clearly we are pre-funded right up to the middle of next year,” Prime Minister Brian Cowan said late Monday.
In a significant development, Northern Ireland’s Sinn Fein leader Gerry Adams announced at the weekend he was resigning from British politics. He said he wanted to seek office in the Irish parliament and campaign for a different policy response to the crisis.
Experts say Dublin will need about €70 billion, and Eurogroup head Jean-Claude Juncker along with the ECB, the European Commission and the International Monetary Fund each say they are ready to act “as soon as possible” if asked.
Others are feeling the heat -- with Spain also under pressure going into a bond sale on Tuesday.
Twenty-four of the EU’s 27 states are currently running deficits way above EU limits.
Bond yields for Ireland, Portugal and Greece all remain high. The speculation is hurting the euro, which may be a minor blessing in disguise for exporters, and markets will again be watched closely over the course of the day.
Europe’s top stock markets fell at the start of trading on Tuesday, with London’s benchmark FTSE 100 index, Frankfurt’s DAX 30 and the Paris CAC 40 each shedding value.