DUBLIN (AP) - Ireland conceded Monday it is in talks with other European Union governments about how to tackle its debt crisis, but continued to deny it is negotiating a potential rescue from the EU bailout fund.
With fears mounting that Ireland could become the next eurozone country after Greece to be bailed out, the Department of Finance said in a statement it was pursuing "contacts at official level." Aides to Finance Minister Brian Lenihan, however, emphasized Ireland has no need for emergency aid given it has enough funds to operate through mid-2011.
Finance department officials declined to comment on Irish media reports that the government is discussing whether the EU fund could be used to support the short-term cash needs of particular Irish banks, rather than the state.
Lenihan is traveling Tuesday to Brussels to discuss the Irish crisis - and its impact on the rising debt costs of other European nations - with fellow finance ministers across the 27-nation union.
The Irish Independent newspaper reported that Lenihan plans to ask other finance ministers about the possibility of using the 750 billion ($1.05 trillion) European Financial Stability Facility to funnel short-term aid directly to debt-crippled Irish banks, rather than to government coffers. The newspaper, which did not name its sources, said the strategy would allow Lenihan "to save face while maintaining control of the economy."
On Sunday, Irish Justice Minister Dermot Ahern denied widespread reports that Ireland was negotiating terms of a bailout package, describing them as "total fiction." The reports, largely emanating from unidentified sources in Brussels, said the potential scope of a rescue deal would range from 60 billion to 80 billion.
Ireland is struggling to prop up its banks and simultaneously to slash a deficit that has ballooned this year to a staggering 32 percent of GDP, a record for post-war Europe. Much of that 2010 deficit involves Ireland's 45 billion support to five banks. Three of those banks have already been nationalized, and Allied Irish Banks appears certain to be nationalized too within weeks. Only Bank of Ireland has been able to borrow money on the open market.
EU chiefs are anxious to quell market fears of an eventual Irish debt default. Those fears are driving up the borrowing costs of other EU nations saddled with red ink, notably Greece, Spain and Portugal.
Analysts said investors needed the finance ministers in Brussels to offer a clear path forward for Ireland, otherwise they would continue to dump the bonds of EU's peripheral nations in favor of German bunds.
"While there is ongoing uncertainty in relation to the need or desire for EU aid, volatility in the Irish bond market looks set to continue," Dublin-based Glas Securities said in a statement.
The yield, or interest rate, on Ireland's 10-year bonds was little changed in early Monday trading. The contract opened at 8.14 percent and oscillated in a narrow range of 8.13-8.22 percent, reflecting investors' uncertainty over the rumors of an EU aid offer.
Irish politicians said the current terms for taking EU aid were hardly ideal for Ireland. They noted that the loans would require repayment or refinancing within three years, and simultaneously would cripple Ireland's ability to borrow money on the bond market.
"If you take a bailout, you lose control of your economic policy for three to five years, and the bailout fund is three-year money," said Joan Burton, finance spokeswoman for the opposition Labour Party. "If you're on three-year money, you keep reaching cliffs over and over again."