May 14, 2012 / 7:05 PM / 8 years ago

Ireland warns of Greek threat as yields climb

BRUSSELS (Reuters) - Rising concerns that Greece could leave or be driven out of the euro zone pushed Irish bond yields higher on Monday, potentially complicating Dublin’s plans to return to international bond markets later this year.

Irish 10-year government bond yields, a measure of the risk associated with investing in Ireland, nudged briefly above 7 percent on Monday on the back of market speculation that Greece could decide to leave the single currency bloc.

If Irish bond yields remain above 7 percent for an extended period, it could hamper plans to return to the market. The International Monetary Fund has already said it doubts whether Ireland can return to markets this year.

Ireland had Europe’s highest budget deficit last year and its growth prospects remain fragile. Having already received an EU/IMF bailout, it is particularly susceptible to the knock-on impact from Greece and other bailed-out euro zone countries.

Ireland’s deputy prime minister, Eamon Gilmore, and the country’s finance minister, Michael Noonan, both underlined their concerns about the fallout from Greece on Monday.

With a referendum on Ireland’s participation in the EU’s new fiscal treaty set for May 31, Dublin is especially sensitive to the fallout from the euro zone debt crisis.

“Greece’s exit would ... be damaging to the euro and could have serious knock-on implications for Ireland,” Gilmore told journalists in Brussels.

“The only sure thing that we know about Greece is that we are unsure about what’s going to happen... what its future is and that is precisely the kind of uncertainty, insecurity and instability that we have to avoid. What the euro needs and what Ireland needs is stability.”

Noonan delivered a similar message as he arrived for a meeting of euro zone finance ministers in Brussels.

“Greece should continue to stay in the euro,” he said. “But they have to set their own house in order ... their problem is not really economic or fiscal. The immediate problem in Athens is a democratic problem.”

Gilmore appealed to voters in Ireland to back the fiscal treaty, which binds countries into cutting their deficits and eventually balancing their budgets. The referendum has been compared to asking the nation whether it wants to keep the euro.

If Irish voters rejected the treaty it could ruin plans to return to borrowing on the markets as the country would be seen a higher default risk by investors without the backstop of the euro zone’s rescue facility, the European Stability Mechanism.

Only countries that have signed up to the fiscal treaty can make recourse to the ESM, a permanent 500 billion euro bailout fund that will become active from July.

Additional reporting by Padraic Halpin in Dublin

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