The European Union is looking to lower interest rates on bail-out loans to Greece and Ireland and is working on a second rescue for Athens in a chaotic effort to prevent a disorderly debt restructuring.
The executive European Commission said today it hoped to see a decision within weeks on reducing the rate charged to Ireland to make Dublin's debt more sustainable.
'The Commission is clearly in favour of a rate cut,' a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn said. 'The Commission is against debt restructuring,' he added.
The Government's bid for lower interest payments has so far been blocked by Germany and France, which want Dublin to drop its veto on harmonising the corporate tax base in Europe in exchange or raise its own low corporate tax rate.
In Germany, a senior lawmaker in Chancellor Angela Merkel's party said a further cut in the rate on emergency loans to Greece, already reduced by one percentage point in March, would be justified if it carried out further reforms to reduce its debt risk.
Michael Meister, finance policy spokesman of Merkel's Christian Democrats, told German radio he opposed any idea that Athens should restructure its debt or that it should consider leaving the euro zone.
However, German Finance Ministry spokesman Martin Kotthaus said: 'There is no discussion at the moment about extending the payment schedule or lowering the interest rates for Greece.'
The calls for lower interest rates came after a select group of top euro zone policymakers held not-so-secret talks in Luxembourg on Friday evening on how to stem the currency bloc's deepening sovereign debt crisis.
A German government spokesman said Merkel would meet European Commission President Jose Manuel Barroso, head of the EU's executive arm, and European Council President Herman van Rompuy, who chairs the bloc's regular summits, on Wednesday to review the situation.
A Greek exit from the euro had never been under discussion and was not now, he told a news conference.
Euro zone and EU finance ministers are due to meet next week to approve Portugal's aid programme amid lingering uncertainty over whether Finland, which has a caretaker government and has not yet begun negotiations for a new coalition, will be in a position to give the required agreement.
Pressure is mounting for those meetings to deliver decisions on Ireland and Greece as well.
Responding to anger in some countries that were not invited to Friday's talks, a German Finance Ministry spokesman insisted there was no attempt to create a two-class euro zone.
Greek Finance Minister George Papaconstantinou, who attended the Luxembourg meeting, said investors did not believe his country could return to capital markets next year as envisaged in its EU/IMF plan, so it might need alternative funding.
Jean-Claude Juncker, chairman of the Eurogroup of finance ministers of the 17-nation euro area, said after Friday's talks there was a consensus that Athens would require a second rescue.
'We think that Greece does need a further adjustment programme,' he said after meeting with ministers from Germany, France, Italy, Spain, the EU's Rehn and European Central Bank President Jean-Claude Trichet.
He gave no details, but a euro zone source said one idea under consideration was for the European Financial Stability Facility rescue fund to buy Greek bonds in the primary market upon issuance next year, in return for a new form of collateral.
Greece, which has a debt mountain of nearly 150% of gross domestic product, is supposed to raise €27 billion in the market in 2012, according to the existing rescue plan.
Market analysts are convinced Athens will have to reduce its debt substantially by a mixture of rescheduling maturities, lower interest rates and possibly convincing private investors to take voluntary losses to avoid a disorderly default.
Cut in interest rate appreciated measure - Kenny
'Concerns about the sustainability of Ireland's debt will remain unless its economy returns to meaningful growth', Taoiseach Enda Kenny said today.
'We carry a heavy burden of debt. Without strong growth, questions of sustainability will remain,' Mr Kenny told a special Dáil sitting marking Europe Day.
'There is no doubt that a reduction in the interest rate on the moneys we are borrowing from Europe would be a meaningful and appreciated measure,' he added.
The Taoiseach said that rebuilding our relationship with our European partners is a critical part of the work of the Government. He said our fundamental interests would be damaged if we stood on the margins.
The Taoiseach reasserted the Government's willingness not to move on the country's 12.5% corporate tax rate, saying it could not be changed without our consent and that consent would not be forthcoming.
Irelands EU Commissioner Maire Geoghegan-Quinn has strongly hinted that a change in the interest rate for the EU bailout to this country will happen.
Ms Geoghegan Quinn said 'significant decisions' will probabaly be made at next week’s EcoFin meeting.
Ms Geoghegan-Quinn also echoed the Taoiseach's comments on the country's corporate tax rate. She said there could be no change without the unanimous agreement of all 27 member states of the EU.
Ireland must secure cut in interest rate - Rabbitte
The Minister for Communications, Energy and Natural Resources said Ireland must secure a reduction in the interest rate.
Pat Rabbitte said yesterday that the case for a cut in Ireland's rate is unarguable.
The issue could be addressed by EU finance ministers next Monday and Tuesday when they meet to decide the terms of Portugal's bail-out package.
He said Ireland intended to continue negotiating improvements in the bailout terms throughout the scheme's three-year life.
Mr Rabbitte said this would make sense in light of the situation in Greece.
