Friday

29th Mar 2024

Germany open to bail-out of a eurozone country

  • Is Germany's tough stance towards help for other eurozone countries softening? (Photo: Wikipedia)

Germany has for the first time publicly raised the idea of bailing out nations in the eurozone that are struggling in the face of the economic crisis, mentioning Ireland in particular.

"We have a number of countries in the eurozone that are clearly getting into trouble on their payments," said German finance minister Peer Steinbrueck, according to Reuters.

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"Ireland is in a very difficult situation," he noted.

"The euro-region treaties do not foresee any help for insolvent states, but in reality the others would have to rescue those running into difficulty."

The comments, made at a Social Democrat conference on Monday, appear to represent a shift in Berlin's thinking, with Germany previously indicating that countries with ailing economies would have to solve their problems themselves.

Ireland, once famed for it booming economy and nicknamed the Celtic Tiger, has been particularly hit by the financial crisis which has seen its property market implode.

Its top credit rating is at risk, rating agency Moody has warned and it suffers from a yawning budget deficit - this year predicted to rise to 11 percent of GDP, smashing through the rules of the eurozone, which limit budget deficits to three percent of growth domestic product.

Credit default swaps (CDS) on Irish Government bonds rose to 386 on Tuesday, prompting the Ireland's Department of Finance to release a statement that conclusions about the "soundness of Ireland's public finances" should not be drawn on the basis of credit default swaps.

A rise in the rates is a sign that market is nervous about credit quality. Greece, Spain, and Austria have also seen strong hikes in default costs.

Meanwhile, later today (18 February) European Commission is set to underline the worsening economic situation in Europe when it publishes budget deficit forecasts for a series of eurozone countries.

Alongside Ireland, eurozone members France, Greece, Malta and Spain are all to be warned on their debt, as will non-euro member Latvia.

The commission, which is struggling to contain the both the economic and political fall-out from the global financial crisis, is expected to issue just a formal warning, but is unlikely to set a strict timetable for returns to budget discipline.

In total, the commission will assess the spending plans of 17 member states on Wednesday - Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Latvia, Malta, the Netherlands, Poland, Spain, Sweden and the UK - at a time when governments are borrowing heavily to try to spend their way out of the crisis.

Assessment of the remaining ten member states will take place later in February.

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