Ireland Turns To EU As Trichet Says ECB Aid Limited

"(BLOOMBERG)

Ireland said it may ask for an international bailout as European Central Bank President Jean- Claude Trichet signaled debt-laden nations can’t rely on him to keep their financial systems afloat forever.

Finance Minister Brian Lenihan said in Dublin he would welcome the creation of “substantial contingency capital funding” for Irish banks. In Frankfurt, Trichet said in a speech that policies first used to fight the global credit crisis can’t “evolve into a dependency as conditions normalize.”

The ECB is concerned that banks in Ireland and Greece are becoming too reliant on its unlimited money market operations and is pushing Ireland to accept a rescued funded by European Union governments and the International Monetary Fund. Irish central bank Governor Patrick Honohan said today that an agreement may amount to “tens of billions” of euros.

EU, IMF and ECB officials today started to study the books of Irish banks battered by the country’s property slump. Investors dumped Irish bonds last week on concern about the nation’s ability to keep its financial system afloat, forcing Prime Minister Brian Cowen’s government to abandon its refusal to seek foreign aid.

“It is quite clear that the banking sector is under huge stress and money is flowing out of the banks and this needs to be addressed,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “We need to take the money and get on with it.”

‘Very Desirable’

Irish bonds rose today, pushing the yield on the country’s 10-year debt down 5 basis points to 8.28 percent as of 2:55 p.m. in Dublin. The premium investors charge to hold the bonds over benchmark German bunds fell to 542 basis points from 554 basis points yesterday. It touched a record 652 points on Nov. 11. Honohan said that Ireland would probably pay an interest rate close to 5 percent on any loans, similar to the rate offered to Greece when it requested a bailo