Irish PM - talking with EU to underpin euro area stability

DUBLIN (Reuters) - Irish Prime Minister Brian Cowen said on Monday the country’s high funding cost would make it hard for banks to support the recovery and it is talking to partners on ways to underpin financial and banking stability.

Repeating that Ireland has not made an application for funding to help state finance, Cowen said a meeting of European financial officials on Tuesday would discuss issues including funding costs.

“The cost of money as expressed in the bond market has been very high although it eased today. We have to discuss these matters with partners... how best to underpin financial and banking stability within the euro area,” he told national broadcaster RTE.

“Having that kind of cost of money... as an ongoing basis if it were to become a norm would make it difficult for banks to function as engines of recovery.”

Ireland’s high borrowing costs and large deficit have caused fears of a Greek-style scenario where budget problems in one country plunge the entire euro zone into crisis, even though its debt requirements are funded until mid-2011.

The Irish government has been reluctant to apply for assistance, partly because it faces a by-election it can ill afford to lose on November 25 and also because it says it wants to preserve its sovereignty.

Earlier today, Ireland opposition said it believes Europe had started moves to rescue Dublin and pressure grew for quick action to prevent the crisis spilling over into other euro zone countries.

Reporting by Lorraine Turner and Natsuko Waki, Editing by Chizu Nomiyama