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Ireland swallows bitter pill, asks EU for loan
Source: Agencies |
November 22, 2010, Monday
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Debt-crippled Ireland has formally applied for a massive EU-IMF loan to stem the flight of capital from its banks, joining Greece in a step unthinkable only a few years ago when Ireland was a booming Celtic Tiger and the economic envy of Europe.
European Union finance ministers quickly agreed in principle to the bailout, saying it "is warranted to safeguard financial stability in the EU and euro area." But all sides said yesterday that further weeks of negotiations loomed to define the fund's terms, conditions and precise size.
Ireland's crisis, set off by its foundering banks, drove up borrowing costs not only for Ireland but for other weak links in the eurozone such as Spain and Portugal. Ireland's agreement takes some pressure off those countries, but they still may end up needing bailouts of their own.
The European Central Bank - which oversees monetary policy for the 16-nation eurozone and first raised alarm bells about a renewed cash crisis in Dublin banks - said the aid would "contribute to ensuring the stability of the Irish banking system." Sweden and Britain, not members of the euro currency, said they also were willing to provide bilateral loans to Ireland.
Irish Finance Minister Brian Lenihan spent much of yesterday talking to other eurozone financial chiefs about conditions they would place on the emergency aid package taking shape.
Lenihan said Ireland needed less than €100 billion (US$140 billion) to use as a credit line for its state-backed banks, which are losing deposits and struggling to borrow funds on open markets. He said the loan facility could last anywhere from three to nine years.
International Monetary Fund director Dominique Strauss-Kahn said his organization "stands ready to join this effort, including through a multiyear loan." He said IMF experts already in Dublin would "hold swift discussions on an economic program with the Irish authorities, the European Commission, and the European Central Bank."
Ireland has been brought to the brink of bankruptcy by its fateful 2008 decision to insure its banks against all losses - a bill that is swelling beyond €50 billion (US$69 billion) and driving Ireland's deficit into uncharted territory.
The country had long resisted a bailout, but Lenihan said it was now painfully clear that Ireland needed "financial firepower" immediately to complement its own cutthroat plans for recovery.
This country of 4.5 million now faces at least four more years of deep budget cuts and tax hikes totaling at least €15 billion (US$20.5 billion) just to get its deficit - bloated this year to a European record of 32 percent of GDP - back to the eurozone's limit of 3 percent by 2014.
European Union finance ministers quickly agreed in principle to the bailout, saying it "is warranted to safeguard financial stability in the EU and euro area." But all sides said yesterday that further weeks of negotiations loomed to define the fund's terms, conditions and precise size.
Ireland's crisis, set off by its foundering banks, drove up borrowing costs not only for Ireland but for other weak links in the eurozone such as Spain and Portugal. Ireland's agreement takes some pressure off those countries, but they still may end up needing bailouts of their own.
The European Central Bank - which oversees monetary policy for the 16-nation eurozone and first raised alarm bells about a renewed cash crisis in Dublin banks - said the aid would "contribute to ensuring the stability of the Irish banking system." Sweden and Britain, not members of the euro currency, said they also were willing to provide bilateral loans to Ireland.
Irish Finance Minister Brian Lenihan spent much of yesterday talking to other eurozone financial chiefs about conditions they would place on the emergency aid package taking shape.
Lenihan said Ireland needed less than €100 billion (US$140 billion) to use as a credit line for its state-backed banks, which are losing deposits and struggling to borrow funds on open markets. He said the loan facility could last anywhere from three to nine years.
International Monetary Fund director Dominique Strauss-Kahn said his organization "stands ready to join this effort, including through a multiyear loan." He said IMF experts already in Dublin would "hold swift discussions on an economic program with the Irish authorities, the European Commission, and the European Central Bank."
Ireland has been brought to the brink of bankruptcy by its fateful 2008 decision to insure its banks against all losses - a bill that is swelling beyond €50 billion (US$69 billion) and driving Ireland's deficit into uncharted territory.
The country had long resisted a bailout, but Lenihan said it was now painfully clear that Ireland needed "financial firepower" immediately to complement its own cutthroat plans for recovery.
This country of 4.5 million now faces at least four more years of deep budget cuts and tax hikes totaling at least €15 billion (US$20.5 billion) just to get its deficit - bloated this year to a European record of 32 percent of GDP - back to the eurozone's limit of 3 percent by 2014.
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