BRUSSELS - The European Union was poised to approve an 85 billion euro ($115 billion) rescue for Ireland on Sunday and announce outlines of a permanent system to resolve Europe's spreading debt crisis, a euro zone source said.
Finance ministers from the 16-nation euro zone, anxious to prevent financial market contagion from engulfing Portugal and Spain, met to endorse an emergency loan package to help Dublin cover bad bank debts and bridge a massive budget deficit.
Finance ministers Sweden's Anders Borg, France's Christine Lagarde, Germany's Wolfgang Schaeuble, Belgium's Didier Reynders and Britain's George Osborne talk together during an euro zone finance ministers meeting at the European Union Council in Brussels November 28, 2010. [Photo/Agencies]
A German government source said the ministers were also discussing Portugal and its possible need of an EU bailout.
Under pressure to take dramatic action to arrest a systemic threat to the euro, the leaders of Germany and France, the EU's two central powers, agreed in principle with top EU officials on the broad lines of a permanent crisis-resolution mechanism.
Crucially, private bond holders would be expected to share the burden of any future sovereign debt restructuring of a euro zone country on a case-by-case basis, the source said.
The heads of the European Commission, the European Central Bank, the European Council and euro zone finance ministers discussed the Franco-German proposal by telephone on Sunday.
All 27 EU finance ministers were expected to endorse the broad outlines of the longer-term plan before markets open in Asia on Monday, the source said.
"You know that we have a very serious situation, we have to do our utmost to protect the foundations of our economic recovery," EU Monetary Affairs Commissioner Olli Rehn told reporters on arrival for the Brussels talks.
He said ministers would go beyond endorsing the EU/IMF aid package for Ireland and "discuss the systemic response to this crisis". But it was unclear how much detail would be announced about a long-term financial safety net.
The lack of detail in an earlier Franco-German deal on a permanent crisis mechanism, agreed last month, and talk of private investors having to take losses, or "haircuts", on the value of sovereign bonds, helped drive Ireland over the cliff.
EU sources said a team of specialists from the Commission, the ECB and the International Monetary Fund had finalised a deal with Irish authorities in Dublin after 10 days of negotiations.
However, some key details, notably the interest rate and the term of the loans, expected to be between three and six years, would be finalised by ministers. French Economy Minister Christine Lagarde said the loans would total 85 billion euros.
"The assistance to Ireland is nearly done," she told reporters. "We just have a little fine-tuning to be done, notably on interest rates."
The EU sources said 35 billion euros was earmarked to help restructure and recapitalise Ireland's shattered banks while 50 billion euros would go to help fill the hole that guaranteeing bank debts has blown in public finances.