November 13, 2010 / 6:08 AM / 7 years ago

UPDATE 1-IMF's Strauss-Kahn says Ireland can manage well

* Says unaware of EU bailout talks

* Willing to provide IMF aid, but sees no need now

* Ireland situation much different from Greece (Adds quotes, details)

By Bill Tarrant

YOKOHAMA, Japan, Nov 13 (Reuters) - International Monetary Fund chief Dominique Strauss-Kahn said on Saturday that Ireland can manage its fiscal affairs well, and the Fund has had no request for aid.

"I have not been in contact with Ireland," he told reporters on the sidelines of an Asia-Pacific summit in Yokohama, Japan. "So far I have not had a request, and I think Ireland can manage well..."

He said the IMF would be willing to help Ireland if needed in the future, but "until now it's business as usual".

Ireland is in talks about tapping emergency funds from the European Financial Stability Facility, euro zone sources told Reuters on Friday, but Ireland said it had not formally applied for any European Union aid.

Strauss-Kahn said he, too, was unaware of talks about an EU bailout for Ireland.

Irish borrowing costs shot to record highs this week because of concern about the country's ability to reduce a public debt burden swollen by bank bailouts, and worries that private bond holders could be forced to shoulder part of the costs of any bailout by taking "haircuts" on their holdings.

Government officials in Dublin have denied repeatedly that they plan to tap EU funds, and an Irish finance ministry spokesman said after the Reuters story was published that there were "no talks on an application for emergency funding from the European Union." [ID:nWLA7943]

Eurozone sources told Reuters that aid discussions were under way, however. One official said it was "very likely" that Ireland would get financial assistance from the EU facility set up after Greece obtained a 110 billion euro bailout in May.

"Talks are ongoing and European Financial Stability Facility (EFSF) money will be used; there will be no haircuts or restructuring or anything of the kind," one eurozone source said. A second source confirmed the talks.

NOT THE SAME AS GREECE

Pressure on Irish bonds eased on Friday after France, Germany, Italy, Spain and Britain, issued a statement confirming that holders of existing euro debt would not take a hit if the EU proceeded with plans to introduce a mechanism letting countries restructure their debt.

That sent waves of relief through markets fearing that the eurozone could be headed toward another debt crisis following the one with Greece earlier this year.

Strauss-Kahn said Ireland's difficulties were much different from Greece's, however.

"The Irish situation is mostly linked to the problem of the banks, especially one big bank, not only one, but mostly one big bank. It's not the same thing as the Greece problem, which was at the same time a fiscal problem but also a competitiveness problem."

He said the Irish government has "taken a lot of measures to get back on track on the fiscal side".

The spread between the Irish 10-year bond yield and the German benchmark, which rocketed to a high of nearly 7 percentage points on Thursday, narrowed to around 5.8 percentage points on Friday.

But borrowing costs for Ireland remain sky-high and pressure on Ireland's fragile banks may have forced the government to enter aid discussions, even though it is fully funded until mid-2011 and does not face the same liquidity crisis that confronted Greece earlier this year.

The EU, in turn, may be keen to calm investors with an Irish bailout to prevent contagion to other indebted countries such as Portugal and Spain.

Additional reporting by Chisa Fujioka; editing by Ed Davies

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