Global markets will keep a close eye on Ireland's debt problems today, with Germany pressing the struggling EU nation to seek a bailout before tomorrow's meeting of European finance ministers.
"In a conference call of European Central Bank [ECB] officials, Ireland was pressed to seek outside help within days," euro zone sources were quoted as saying in reports yesterday.
Concerns that Ireland is on the verge of defaulting on its debts threaten to unnerve investors as the German chancellor Angela Merkel tries to push through tough new rules to avert a repeat of the Greek financial crisis this year.
Greece narrowly avoided default with the help of a €110 billion (Dh552.52bn) bailout backed by the IMF and EU in the summer. Since then, the EU has been working on a plan to contain future fiscal problems among euro zone members.
Mrs Merkel's proposal, which would take effect from 2013, requires investors to take write-offs in sovereign debt rescue packages.
Her stance on the issue has been controversial and she has publicly clashed with Jean-Claude Trichet, president of the ECB, over the new regulations. Mr Trichet has said requiring investors to take losses in a sovereign debt rescue would undermine confidence.
Euro zone leaders are also divided on Mrs Merkel's proposal that Ireland should seek aid now.
"An Irish request for aid would take pressure off the discussion of the mechanism right now," said Carsten Brzeski, a senior economist at ING Groep in Brussels.
"But once that's decided upon we will get only new speculation about what it means for all of the countries using the fund as 2013 nears."
Ireland stressed at the weekend it does not need an injection of EU cash, even though Barclays Capital said the country might need up to €80bn to sort out its debt problems in the next two years.
Jean-Claude Juncker, the prime minister of Luxembourg and the chairman of the European finance ministers group, said there was "no immediate reason" to think Ireland would request cash.
Bailing out Ireland's financial system would cost as much as €50bn under a "stress case" scenario compiled by the country's finance ministry and central bank. The IMF has already pledged to help Ireland if needed.
"So far I haven't received any kind of request," Dominique Strauss-Kahn, the managing director of the IMF, said on Saturday. "If at one point in time - tomorrow, in two months or two years - the Irish want support from the IMF, we will be ready."
Easing investors' fears over Ireland would help Germany make its case to other euro zone countries on debt write-offs, a German official said.
Mrs Merkel last week appealed to markets for understanding over her push to force investors to help pay for any future crises.
"I ask the markets sometimes to bear politicians in mind, too," she said. "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."
Mr Juncker, Mr Trichet and the Spanish prime minister Jose Luis Rodriguez Zapatero have criticised Mrs Merkel's stance. Mr Zapatero said last week that Spain opposed her plans.
"This could potentially drive investors from the euro zone, especially from the peripheral countries," Mr Juncker said.
Ireland's woes formed part of the debate at the Seoul summit of the Group of 20 leading and emerging economies last week, from which the finance chiefs of Germany, France, the UK, Spain and Italy successfully cooled market concerns by saying a plan being debated to have investors cover future bailout costs would have "no impact" on existing debt.
"Clarification was needed and it is good news it's now out there," said Erik Nielsen, the chief European economist at Goldman Sachs.
* with Bloomberg