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European Ministers Hold Ireland Debt Crisis Talks at G-20


Group of 20 leaders discussed Ireland’s debt crisis, which has driven bond yields to records and weakened the euro on concern the European Union will need to step in with a bailout.

Finance ministers from Germany, France and the U.K. are monitoring developments and will probably issue a joint statement later today, said Steffen Seibert, a spokesman for German Chancellor Angela Merkel. G-20 leaders spent a considerable time discussing Europe’s debt woes, said a U.S. official who participated in the meetings in Seoul and spoke to White House reporters on condition of anonymity.

“Preparations are in place” for any aid request by European Union countries facing a debt crisis, Merkel told reporters in the Korean capital. German Finance Minister Wolfgang Schaeuble said individual EU countries must decide for themselves whether to seek aid.

The premium investors charge to hold Irish debt over German bunds climbed to a record yesterday and the euro fell to a six- week low against the dollar today. Yields on 10-year Irish bonds added 31 basis points to 9.07 percent.

Bailing out Ireland’s financial system could cost as much as 50 billion euros ($68 billion) under a “stress case” scenario compiled by the finance ministry and central bank. The euro fell to $1.3612 as of 1:12 p.m. in Tokyo after sliding to $1.3601, the weakest since. Sept. 30.

Investor Pessimism

A majority of global investors predict Ireland will default on its sovereign debt, showing government efforts haven’t allayed creditworthiness concerns. As the government puts the finishing touches on a plan to find 15 billion euros in savings, 51 percent of respondents in the latest Bloomberg Global Poll say they regard a default as likely, compared with 42 percent who say it is unlikely. The ranks of those anticipating an Irish default have tripled since a poll in June.

Germany is the biggest contributor to this year’s 860 billion euros in loans and pledges to stem Europe’s debt crisis. Bonds of the euro area’s so-called peripheral nations have tumbled since EU leaders on Oct. 29 backed Merkel’s demand to set up a permanent rescue system by 2013 that makes bondholders foot part of the cost of any future debt crisis.

The three-country statement will rebut criticism from Ireland and others that talking about debt restructuring in the post-2013 system is widening bond spreads, Schaeuble said in Seoul.

Bondholder Contribution

“The future crisis mechanism has nothing to do with the debate going on right now,” Merkel said.

Germany will spell out to what extent bondholders would contribute to a sovereign bailout next week, rather than wait until a European Union summit in December, the Financial Times Deutschland reported yesterday, citing the finance ministry. Bertrand Benoit, a ministry spokesman, declined to comment.

Merkel, who faces elections next year in states with 25 percent of Germany’s population, says her goal is to enforce fiscal discipline in the euro area and avoid putting German taxpayer money on the line in any future bailout.

“There may be a conflict here between the interests of the financial world and the interests of politicians,” Merkel said in Seoul yesterday. “We can’t constantly explain to our voters that taxpayers have to be on the hook for certain risks rather than those who make a lot of money taking those risks.”

Losing Streak

Irish government bonds tumbled for a 13th day yesterday on mounting concern the nation will be forced to restructure its finances, extending the longest losing streak in at least three years. The 5 percent security maturing in October 2020 slipped 1.65, or 16.5 euros per 1,000-euro face amount, to 74.09.

Yields on 10-year Irish bonds are the highest since the advent of the euro in 1999, and the premium over German bunds is more than seven times what it was two years ago. Ireland’s budget deficit as a share of gross domestic product was the highest in the 16-nation euro area at the end of 2009.

“We are monitoring the situation in Ireland on a permanent basis,” European Commission President Jose Barroso said in Seoul yesterday. Europe has “all the necessary instruments in place” to offer financial help “if necessary,” he said.