#NEWS WRAPUP 1-EU-IMF mission to discuss steps to help Ireland

Tue Nov 16, 2010 8:30pm EST

* IMF-Europe mission to visit Ireland to discuss debt crisis

* Irish government resists bailout, says banks may need help

* Banks weakened by financial crisis and property crash

By Timothy Heritage and Ilona Wissenbach

BRUSSELS, Nov 17 (Reuters) - Euro zone ministers have agreed to send a joint European-IMF mission to Ireland that could prepare the way for a bailout to prevent its debt crisis spreading to other countries.

The ministers said after talks on Tuesday that the European Commission, the International Monetary Fund and the European Central Bank team would focus in talks starting this week on helping Ireland's banking sector, if Dublin decides to ask for aid.

However, economists said a state bailout was a distinct possibility, despite the Irish government's decision to resist pressure for an immediate rescue just months after the IMF and the EU stepped in to help Greece service its debts.

"There is an air of inevitability that there will be some sort of bailout," said Alan McQuaid, chief economist at Bloxham Stockbrokers. "Why come to Dublin if you are not going to give a bailout?"

The Irish government hopes to avoid a humiliating rescue that could further weaken its grip on power but has left the door open to aid for its banks, which were driven to the brink by the global financial crisis and a property market crash.

The banks have become increasingly reliant on funding from the ECB because other commercial banks have been reluctant to lend to them since the crisis in Greece.

"Any assistance in relation to resolving the problem of the Irish banking system will be most welcome," Irish Finance Minister Brian Lenihan said.

The action by the euro zone finance ministers, who will be joined by the other EU finance ministers at talks in Brussels on Wednesday, echoed a decision to send an EU-IMF-ECB team to Greece as part of Athens' rescue.

"These preparations can ... be regarded as an intensification of a potential programme with an accent on the restructuring of the banking sector, in case a programme is requested and deemed necessary," European Economic and Monetary Affairs Commissioner Olli Rehn said. [ID:nLDE6AF2EN]

Euro zone sources said there was an agreement in principle to trigger aid for Ireland when the joint mission completes its consultations -- perhaps in days -- and the aid would not be just a programme for the banks.

French Economy Minister Christine Lagarde said work was under way to explore what steps might be taken and "we are closer to a question of days rather than six months".

The stakes are high even though other European officials played down a suggestion by European Council President Herman Van Rompuy, who heads the body that groups the EU's 27 national governments, that the EU's future could be at stake.

German Chancellor Angela Merkel said she did not believe the euro zone was in danger.

"But we are experiencing turmoil and situations of the kind I wouldn't have dreamed of a year and a half ago," she told ARD television.

Merkel, like the euro zone ministers, said Greece, Spain and Portugal -- some of the weakest euro zone economies -- were working hard to solve their problems by imposing austerity measures and carrying out reforms. [ID:nLDE6AF2F5]

Asked about Ireland, she said: "We have a rescue shield in case a country needs aid, which I don't see at all at the moment. But if a country needs it, it can request aid if the euro zone as a whole is in jeopardy."

Concern that Ireland's crisis could spread to other weak economies in the 16-country euro area has unsettled financial markets and pushed up borrowing costs.

Any prolonged uncertainty could cause new jitters on the markets [ID:nLDE6AF2GW] although McQuaid said bond markets might respond positively on Wednesday to the ministers' action.

"But I am not convinced that even if we get a bailout the euro zone thing (problems) will finish there. The markets are smelling blood," he said.

"There are a lot of guys in the U.S. who are worried that this is going to proceed into a full-blown bond market crisis, it's going to start off in Dublin and end up in Washington."

Bank of Ireland (BKIR.I), the country's largest lender, signalled last week it had suffered a 10 billion euro outflow of deposits from early August until the end of September.

Allied Irish Banks (ALBK.I), which will be more than 90 percent owned by the state following a rights issue later this year, will issue a trading statement later this week with details about its funding situation.

EU sources say possible aid under discussion for Ireland ranges from 45 billion to 90 billion euros ($63-123 billion). Ireland has said the bill for bailing out its lenders could top 50 billion euros, but investors fear the figure could be worse. (Writing by Timothy Heritage, editing by Andrew Dobbie))

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