UPDATE 2-Ireland in talks to get EU financial aid -sources

By Jan Strupczewski BRUSSELS, Nov 12 (Reuters) - Ireland is in talks about tapping emergency funds from the European Financial Stability Facility, euro zone sources said on Friday, but Ireland said it had not formally applied for any European Union aid. The process of getting support from the EU requires a formal application from a euro zone government, that has to be assessed by the European Commission and the European Central Bank and approved by euro zone finance ministers. "Talks are ongoing and European Financial Stability Facility money will be used, there will be no haircuts or (debt) restructuring or anything of the kind," one euro zone source said. "It is very likely that Ireland will get a programme." Euro zone finance ministers will discuss the budget situation of Ireland, Portugal and Greece on Tuesday. Ireland's finance ministry said it had not applied for emergency funding from the European Union: "There is no application for emergency funding from the European Union," a spokesman for the ministry said. But a second euro zone source confirmed that talks, despite the lack of a formal application, were taking place. "The talks are ongoing between the EU and Ireland on a lending package from the EFSF, of unspecified size," the second euro zone source said. "It is clear there will be no haircuts, which should help restore calm to markets," the source said. Irish Finance Minister Brian Lenihan said earlier on Friday the country did not need to ask for EU help because it was fully funded until June 2011 and had substantial cash reserves. "The state is well funded into June of next year, we have substantial reserves, so this country is not in a situation or position where it is required in any way to apply for the facility," he said in an interview with RTE television. "Why apply in those circumstances? It doesn't seem to me to make any sense. It would send a signal to the markets that we are not in a position to manage our affairs ourselves," he said. Jean-Claude Juncker, the Luxembourg prime minister who chairs the talks of euro zone finance ministers, said he could not confirm if Ireland had applied for help, but that the Eurogroup was following the Irish situation very closely. Irish bond yield spreads over German Bunds have surged to 6 percent in recent days on market concern that euro zone preparations for a debt restructuring mechanism meant it was preparing the ground for a possible Irish or Portuguese default. Funds that euro zone countries cut off from the markets can obtain from the EFSF would come at a price similar to that paid by now Greece for its euro zone aid -- around five percent. If the talks lead to Dublin formally applying for and getting the funds, Ireland would be the first euro zone country to use the EU's financial safety net, created in May for euro zone countries cut off from market financing after the Greek debt crisis. The EU has created a 750 billion euro ($1 trillion), IMF-backed emergency fund for euro zone countries in trouble. Of the total, 440 billion euros is in euro zone government guarantees, 60 billion is backed by the European Union budget and 250 billion would come from the International Monetary Fund. If needed, the 60 billion guaranteed by the EU budget is to be tapped first. (Reporting by Jan Strupczewski, editing by Luke Baker) ($1=.7332 Euro) ($1=.7332 Euro) Keywords: EUROZONE IRELAND/ (jan.strupczewski@reuters.com; +32-2-287 6837; Reuters messaging: jan.strupczewski.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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