A decision on whether or not to cut the interest rate Ireland pays for its EU-IMF rescue loan will not be taken at the two-day summit of EU leaders in Brussels beginning tomorrow, EU diplomats have said.
The issue has been parked until the results of the bank stress tests are published, a senior diplomat said. The stress tests results are expected on March 31.
Another senior EU source said, however, that a new loan to Ireland was a 'possibility' if the results of the stress tests showed that a much higher amount of capital was required for the banking sector than the €10 billion, or even €35 billion in contingency funding, which was foreseen in the EU-IMF programme.
The decision was taken following intensive contacts between Dublin and Brussels in advance of the summit.
'It's felt that due to the outstanding banking issues everything is better dealt with as a package,' the source said. 'There will be no push [at the summit] for agreement on the Irish issue.'
It is understood that the question of taxation at a European level, in particular the issue of the Common Consolidated Corporate Tax Base (CCCTB), remains open for discussion in connection with the Irish interest rate, but only after the results of the stress tests are known.
It is likely, however, that the Taoiseach Enda Kenny will continue to make Ireland's case on the sustainability of the austerity programme and the need for a re-working of the terms of the loan when he meets EU leaders at the summit in Brussels tomorrow evening.
In particular he will stress that Ireland's austerity programme did not just begin with the EU-IMF programme, but had already started in 2008.
It will also be Mr Kenny's first opportunity to make Ireland's case before the other 26 EU leaders. The summit on March 11 was limited to euro zone leaders.
Once the stress tests are published, EU finance ministers are expected to take immediate stock of Ireland's situation and the implications for the terms of the existing EU-IMF loan before deciding on what action to take.
Delay reports hit Irish bond yields
The yield - or effective interest rate - on Irish ten-year bonds has passed the 10% mark for the first time since the creation of the single currency. Yesterday two-year bonds broke the 10% mark and are today still yielding more than 10-year bonds, indicating market concerns that a default may occur before 2013, when a new EU rescue fund is supposed to come into being with the explicit possibility of loses being imposed on bondholders.
But traders cautioned that the movements in Irish bonds were based on very small volumes of trading.
Market sources told RTÉ News that indications from Brussels ahead of this week's summit that Ireland would not get a new bail-out deal, and would have to wait until the June summit, had increased investor concerns.
Those worries increased over the political situation in fellow euro zone peripheral state Portugal, where the government faces a crucial budget vote later tonight which could see the government brought down.
Meanwhile, ratings agency Standard & Poor's estimates Irish banks may need up to €19 billion in extra capital. S&P has conducted its own stress tests on European banks, and says that under a severe stress scenario Irish banks could need this amount of money, equivalent to 12.2% of GDP.
Merkel wants Irish 'quid pro quo'
German Chancellor Angela Merkel has said Germany is still open to a deal with Ireland on reducing the cost of its bail-out package, but she said Ireland would have to offer something in return.
The Government has been seeking a reduction in the interest rate it pays on loans under the €85 billion package agreed with the EU and IMF late last year. Germany has been pressing for Ireland to increase its low corporation tax rate.
A German official said earlier that there was only a slim chance of further action on Ireland at an EU summit in Brussels later this week that aims to secure progress on a series of measures to see off Europe's debt crisis.
'We are still in talks with Ireland and the principle of quid pro quo must always be included,' Merkel said.
She also said that debt issued by the new permanent European rescue mechanism must contain so-called collective action clauses allowing restructuring if a majority of creditors so decide.
