Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: ireland | europe | eu | germany | bailout | imf

Ireland Finally Agrees to Bailout, Mulls Bank Fix

Sunday, 21 November 2010 12:42 PM

Ireland will seek a bailout from international lenders, Finance Minister Brian Lenihan said on Sunday, ending weeks of speculation that it would need aid to prop up its banks and help it secure cheaper state funding.

The bailout, which would be the second rescue package for a euro zone country this year, would be less than 100 billion euros, he said, but he did not give details of the likely cost.

"I will be recommending to the government that we should apply for a programme and open formal negotiations," Lenihan told public broadcaster RTE. He said a plan to restructure Ireland's banks was likely to be a main feature.

However, he dismissed pressure on Dublin from other euro zone countries to raise low business taxes that have attracted many multinational companies to Ireland, saying changes to corporation tax were off the agenda and would hamper growth.

Sources have told Reuters Ireland may need 45 billion euros to 90 billion euros ($63 billion to $126 billion), depending on whether it needs help only for its banks or to cover general government spending too.

If the government goes for a loan to cover three years' worth of state financing requirements it would need about 65 billion euros to 70 billion euros. Lifting the core Tier 1 capital ratios of the country's three largest listed lenders would add another 15 billion euros to that figure.

Yields on Irish government bonds have shot up during the current crisis, meaning that the state would have to pay prohibitively high interest rates to borrow commercially.

"It would makes sense for the government to borrow for three years given where yields are currently," said Brian Devine, economist at NCB Stockbrokers.

International Monetary Fund and European Commission officials have been in Dublin since Thursday to discuss financial aid to help Ireland cope with its banks, whose huge liabilities have sent Irish borrowing costs soaring.

"Because of the degree of their dependence and support from the European Central Bank it is essential that we deepen the approach to addressing the structural problems in the (Irish) banking system," Lenihan told RTE.

"The focus of the discussions is establishing a capital fund that will demonstrate that the banks have the firepower in the event that further losses materialise in them."

Irish banks, brought to the brink of collapse by exposure to a property and construction sector that slumped after the global financial crisis, have grown dependent on ECB funds and suffered an exodus of deposits over the past six months.

 Euro zone ministers were to discuss Ireland's application for European Union financial help later Sunday, but no concrete amounts would be discussed yet, a euro zone source told Reuters.

The main concern for EU policymakers is Ireland's problems spreading to other euro zone members with large budget deficits like Spain and Portugal, threatening a systemic crisis.

In May the EU and IMF launched a 110 billion euro rescue package, the first of a euro zone country, aimed at pulling Greece back from the brink of bankruptcy. In return Athens promised harsh austerity measures which brought large numbers of Greeks onto the streets in protest.

Lenihan welcomed comments from French and German leaders that Ireland's 12.5 percent corporate tax rate, a bone of contention for its euro zone partners, should not be linked to Ireland's bailout. "That issue is off the agenda now, let's be clear about it," he said.

As well as a bank plan, the government will unveil details next week of a four-year austerity plan to save 15 billion euros, which Lenihan said would help to restore some confidence.

But calls are growing for the government to stand down over its handling of the crisis. Outside government gates on Sunday, someone hung a sign saying "Traitors" over the official "Department of the Taoiseach (Prime Minister)" sign.

Public sentiment reached boiling point this week after the government insisted publicly it was not in talks when informal discussions were in fact taking place.

Even politicians from within ruling Fianna Fail's own ranks added their voices to criticism of the government on Sunday.

"Fianna Fail as a party must change, and it must call an election — even if it means that we will lose power," Fianna Fail lawmaker John McGuinness wrote in The Irish Mail on Sunday. "(Prime Minister) Brian Cowen must stand down."

Cowen, finance minister at the end of Ireland's boom years, will finalise the austerity programme with the cabinet on Sunday.

Local media said the package would include a new property tax and cuts to the minimum wage, child benefits and job seekers' allowances. Tax breaks for higher earners may also go.

Unions say such measures may prove a tipping point.

"The talk now is of the budget, and effectively destroying the social welfare system. I think there is going to be huge civil unrest as a result of that," union leader Eamon Devoy told Reuters. A spring election is likely even if the government manages to pass the first of its austerity budgets next month due to Fianna Fail's razor-thin parliamentary majority, which is expected to be cut further in a by-election on Thursday.

A coalition of centre-right Fine Gael and centre-left Labour is considered the likely successor, although they would be unlikely to deviate far from the austerity programme, particularly if it is linked to the aid package.

© 2022 Thomson/Reuters. All rights reserved.

Ireland will seek a bailout from international lenders, Finance Minister Brian Lenihan said on Sunday, ending weeks of speculation that it would need aid to prop up its banks and help it secure cheaper state funding. The bailout, which would be the second rescue package...
Sunday, 21 November 2010 12:42 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved