Ireland going for international bailout
Sunday, November 21, 2010
DUBLIN (AP) — Ireland is asking for a multibillion-euro international bailout of its crisis-hit economy, a move the country’s finance minister said Sunday would help shore up the country’s finances and guarantee its catastrophically indebted banks.
Ireland’s neighbors hope a bailout by the European Union, the European Central Bank and International Monetary Fund will relieve pressure on other eurozone members facing mounting debts and deficits and prohibitive interest rates on new borrowing — a situation that Ireland’s troubles had been exacerbating.
But the loan request — described by Brian Lenihan only as “very big” — is also a humiliating turnaround for the Irish government, which only days ago had denied that such a package was being negotiated or was even necessary. The nation will have to hand some control over its finances to international institutions.
“I will be recommending to the government that we should apply for this program,” a somber Lenihan told Irish state broadcaster RTE. The Irish cabinet is expected to sign off on the request later Sunday.
Ireland is running an annual deficit of 19 billion euros ($26 billion) which Lenihan said could not be financed at current market rates. The country is turning to the international community to ask for the money to help pay its bills and provide a contingency fund to back up the country’s debt-ridden banks, which are hemorrhaging cash.
In the interview, he refused to give a precise figure on the fund, saying only that it would reach tens of billions of euros. He denied the figure would top 100 billion euros, as some had speculated.
Lenihan said that bridging the gap between the government’s swollen spending and its modest revenue would currently mean taking out loans at a punishing 8 percent interest rates.
“Clearly we want to borrow for much less than that,” he said.
After cabinet approval of the application, Irish, EU and IMF officials would negotiate the details of the bailout.
The Irish rescue is the latest act in Europe’s yearlong drama to prevent mounting debts and deficits from overwhelming the weakest members of the 16-nation eurozone. Greece was saved from bankruptcy in May, and analysts say Portugal, which some argue has done less than the Irish to bring discipline to its spending, could be next.
Ireland is moving aggressively to slash 15 billion euro ($20.5 billion) from its annual deficits, an unprecedented austerity push which — it had been hoped — would save Dublin from seeking a bailout. This year’s deficit is set to reach a modern European record of 32 percent, chiefly because of Ireland’s ever-escalating costs of bailing out five Irish banks.
The office of Prime Minister Brian Cowen said the 15-member Cabinet would put the finishing touches on the austerity plan Sunday. It has been in the works since September, runs to 160 pages and is expected to be publicly unveiled Tuesday.
The government says the still-confidential plan has been endorsed by dozens of experts from the IMF, the European Commission and the European Central Bank, who have been poring over the accounts of the government, treasury and banks since Thursday.
Both Cowen and Lenihan stressed that Ireland’s 12.5 percent rate of tax on business profits — its most powerful lure for attracting and keeping 600 U.S. companies based here — would not be touched no matter what happened. France, Germany and other eurozone members have repeatedly criticized the rate as unfair and say it should be raised now given the depth of Ireland’s red ink.
The prospect of having the IMF and others oversee Ireland’s finances is unwelcome in Ireland, a nation whose independence from Great Britain was only recognized in 1922. Editorials in the Sunday newspapers spoke of a sense of shame and humiliation at having to go abroad seeking help.
Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland’s 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Cowen’s Fianna Fail’s destruction at the next election.
“Slaughter them after Christmas,” the Sunday Independent’s lead editorial urged.
Raphael G. Satter in London contributed to this report.