Ireland's new prime minister in waiting pleaded with fellow European conservative leaders Friday for easier terms on Dublin's financial bailout loans but was told there would be no free lunches.

Enda Kenny acknowledged that many European governments opposed his wish to make senior bondholders in shattered Irish banks share with taxpayers the massive losses that forced his predecessors to seek an IMF/EU rescue last November.

If that's not to be a focus of action, then there has to be another measure of flexibility shown, Kenny told national broadcaster RTE in Helsinki on the sidelines of a meeting of the center-right European People's Party.

German Chancellor Angela Merkel, who attended the EPP talks, questioned Wednesday whether there was any need to change the conditions of the 85 billion euro ($118.7 billion) Irish package, saying interest rates could not be cut artificially.

Finnish Finance Minister Jyrki Katainen told Reuters before hosting the Helsinki meeting that the European Union should not loosen conditions on rescue loans for Ireland.

There are no free lunches, Katainen said in an interview. Of course we have to take care that the Irish package really works, because it is in all our interests to ensure that Ireland will recover ... Therefore we have to look at the debt sustainability.

I don't know exactly what will be the outcome because we have to at the same time look at the Irish sustainability development and be very strict. We don't loosen the package.

Ireland argues that the 5.8 percent interest rates set on euro zone rescue fund loans will worsen its debt woes.

European Commission President Jose Manuel Barroso told reporters that Kenny's determination should be supported, but Ireland needed to take some tough measures.


Merkel said earlier that European leaders must deliver a convincing response to the euro zone's debt crisis regardless of a European Central Bank threat to raise interest rates.

She was speaking a day after ECB President Jean-Claude Trichet shocked markets by saying the central bank may increase rates as early as April due to inflation risks.

After talks with Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro area finance ministers, on preparations for two crucial summits this month, Merkel said they had agreed to do everything to keep the euro strong.

Regardless of the question of the ECB and interest rates, we know that we need to put a joint package for the euro zone on the table, she told a joint news conference.

She stressed Germany's priorities to strengthen fiscal discipline and boost economic competitiveness in the 17-nation single currency area, but did not rule out letting the euro zone's temporary rescue fund buy government bonds.

Germany, the EU's main paymaster, has made no commitment so far to increasing the lending capacity of the European Financial Stability Facility or letting it help countries more flexibly.

Asked whether the EFSF might purchase bonds of vulnerable members states, Merkel said: There is a lot of discussion going on about possible options and these need to be examined.

Her center-right parliamentary coalition parties and the Bundesbank have publicly opposed allowing the EFSF to buy bonds or lend money to fund debt buy-backs by states in difficulty.

EU diplomats say Germany is waiting to see what commitments other countries are prepared to give at a March 11 euro zone summit before showing its hand on the rescue fund and whether to allows its full 440 billion euros to be lent out.


Analysts said the ECB move raised pressure on EU leaders to agree on decisive action at this month's summits.

Failure would risk a fresh market attack, probably first against Portugal which is seen as the likeliest candidate to follow Greece and Ireland in needing a bailout.

Intentionally or otherwise ... the ECB's change of stance would also appear to send a timely signal ahead of (the) summit that it is not prepared to set monetary policy purely to support the region's weaker economies while European policymakers dither over a solution to peripheral debt crisis, Jonathan Loynes of Capital Economics wrote in a research note.

The ECB did agree to keep offering banks unlimited liquidity until mid-year, something Portuguese banks have relied upon.

Juncker said after his meeting with Merkel that markets were calm for now because they assumed EU leaders would find a watertight solution to the debt crisis by the end of March.

Prime Minister George Papandreou of Greece, the first country to require a euro zone bailout, warned of a bond market backlash if they failed to take bold decisions.

If our decisions in the EU are not brave and effective, markets will react very quickly and we will find ourselves at the negotiating table again. he said in a speech to his Socialist party's national council in Athens.

European Monetary Affairs Commissioner Olli Rehn, speaking in Paris, cautioned that a successful outcome to the sovereign debt crisis is by no means guaranteed.

In one sign of possible trouble ahead, Fitch Ratings revised down its sovereign credit rating outlook for Spain to negative from stable Friday, citing the long-term impact of restructuring its savings banks.

Fitch, which has Spain on an AA+ rating, said Madrid had exceeded expectations in fiscal consolidation, pension and labor reform but cited downside risks from a weak economic recovery, the banking sector shakeout and regional government spending.

Greece and Ireland are struggling with the same dilemma. Punitive interest rates imposed by the euro zone are higher than their projected economic growth rates, making it harder for them to service their growing debt burden in future.

In a possible hint of flexibility, a senior lawmaker in Merkel's Christian Democratic Union (CDU) party said Germany might be willing to support a cut in the cost of the Irish rescue package if Dublin raised its low corporate tax rate.

(additional reporting by Padraic Halpin in Dublin, George Georgiopoulos in Athens, Daniel Flynn and Leigh Thomas in Paris, Andreas Rinke in Helsinki, Sarah Marsh in Berlin; writing by Paul Taylor, editing by Ralph Boulton)