At a hastily arranged meeting, which followed another week of turmoil for countries using the euro currency, finance ministers came to a consensus on both the details of Ireland’s bailout and the creation of a permanent fund to backstop vulnerable economies.
Policy makers hoped that swift action could quell the fear of contagion ahead of the opening of the markets Monday and ease further pressure on Portugal and Spain.
In recent weeks, markets have reacted negatively to uncertainty over the future of a new mechanism to replace the 440 billion euro fund set up earlier this year to help euro-zone countries. Fears that the private sector would be expected to absorb losses in any euro debt crisis after 2013, which is when the fund’s mandate now ends, have been blamed by some for pushing Ireland to the brink.
On Sunday, the ministers agreed that the new fund would be structured loosely on the current European backstop fund, which operates from Luxembourg, said an E.U. official who was not authorized to speak publicly. As Germany had sought, private investors will be involved in debt crises after 2013 on the principles established by the International Monetary Fund, and, as France sought, private investors would be involved on a case-by-case basis.
The government in Berlin had wanted the automatic involvement of the private sector, while Paris preferred a more flexible system.
In a move that underlined the importance attached by the European Union to Sunday’s meeting, telephone consultations took place before it began among the French president, Nicolas Sarkozy; the German chancellor, Angela Merkel; the president of the European Central Bank, Jean-Claude Trichet; the president of the European Council, Herman Van Rompuy; and the president of the European Commission, Jose Manuel Barroso, according to a statement from E.U. officials.
“Obviously, it’s in everyone’s interest and in Britain’s national interest that we get some economic stability in Ireland and indeed across the euro zone,” said George Osborne, the British chancellor of the exchequer, as he arrived for the gathering. “It’s in the whole of Europe’s interest now that we bring this matter to a close, get some stability and get our economies growing.”
On his way into the talks, Olli Rehn, European commissioner for economic affairs, said, “We have to discuss the broader ramifications of the current crisis and we have to discuss a systemic response to this crisis.”
Officials from Ireland, the European Union and the International Monetary Fund were still discussing on Saturday the interest rates to be applied to loans, and the role of the private sector in the rescue of Irish banks, which are straining under huge debt obligations.
Suggestions that the bank restructuring could involve senior bondholders surfaced on Friday when The Irish Times reported that options being discussed included debt being converted into equity, or bond investors being given the choice of injecting fresh capital into the newly restructured banks or taking a loss.
But European officials were cautious about such an approach because of the jittery markets and the risk that a negative reaction on Monday could push Portugal or Spain further into trouble.
Ireland’s debt crisis was touched off in part by Germany’s insistence that the private sector should be involved in a future crisis resolution mechanism.
In Ireland, imposing “haircuts” on bank investors might be politically popular in the short term, but it carries the risk of worrying lenders in the future, once the Irish government goes back to the market.
The Irish broadcaster RTE has reported that the interest on loans from the European Union and I.M.F. could reach as high as 6.7 percent, but officials played that down on Saturday.
Though that rate could be for long-term loans, spread over nine years, it would apply to the bank restructuring, not the three-year package to shore up the Irish government finances.
The average rate is expected to be less than 6 percent, though slightly more than the 5.2 percent charged to Greece, which received aid from the European Union and I.M.F. earlier this year.
The package is certain to be complex because aid is expected to come from four sources — two separate European Union funds, the I.M.F. and most likely bilateral loans from Britain and Sweden.
John F. Burns in Dublin and Liz Alderman in Paris contributed reporting
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