Irish officials were holding talks with an informal gathering of eurozone finance minister in Brussels before Wednesday's session of ministers from the full 27-member union. The euro, meanwhile, fell to its lowest level against the dollar in six weeks.
At issue is whether Ireland, whose banks are reeling from a real estate bubble, should seek a bailout from an emergency aid fund set up earlier this year by the EU and International Monetary Fund in the wake of the Greek debt crisis.
Ireland is resisting a bailout, but other struggling nations such as Portugal want Ireland to take the assistance to calm investors and keep the contagion from spreading to their financial markets.
EU Council President Herman Van Rumpus warned that the EU could collapse if the debt crisis was not resolved.
"We're in a survival crisis," Van Rompuy said in Brussels. "We all have to work together in order to survive with the eurozone, because if we don't survive with the eurozone we will not survive with the European Union."
But Irish Minister for European Affairs Dick Roche told the BBC that his government doesn't need assistance.
"There is no need to trigger a bailout from the EU and the IMF," Roche said.
Hans Redeker, head of foreign exchange strategy at French bank BNP Paribas, says the Irish are resisting demands to take the aid because they don't want to be forced to give up their relatively low corporate tax rate as part of the package, which includes requirements for expenditure cuts and tax increases.
"Ireland has made absolutely massive adjustments," Roche said.
"They know very well that other countries like Spain and Portugal do need the money from the capital markets in some urgency," Redeker says. "That actually means that Ireland is in a very good negotiating position – they can wait, while others cannot."
Ireland regards its current crisis as a bank liquidity problem, not a sovereign debt crisis in which the government can't pay its bills as happened in Greece. As a result, it doesn't feel that it needs a bailout immediately. But the fear in Brussels is that if an emergency aid package is not agreed with Dublin, the financial markets will respond with panic, making it impossible for other European governments to dell their binds.
The European Central Bank obviously doesn't agree: it added additional reserves into the system Tuesday to keep the euro from declining further because of the instability created in Ireland. The ECB has lent $115 billion to Ireland's banks to keep them afloat.
Fears of Contagion
Irish bond yields edged higher Tuesday morning, reaching 5.79% over German government bonds, considered the safest in the euro area.
Portuguese Finance Minister Fernando Teixeira dos Santos also warned that the chances of his country turning to the EU and IMF for assistance were growing because of contagion from Ireland.
"The risk is high because we are not facing only a national or country problem," he said. "It is the problems of Greece, Portugal and Ireland. This is not a problem of only this country. This has to do with the eurozone and the stability of the eurozone and that is why contagion in this framework is more likely."
With many European officials considering this an existential crisis for the eurozone, it is likely that Ireland will be forced to accept a plan, but perhaps more on its own terms because of its relatively healthy short-term budget situation.