According to a statement released by the Irish government, the country will take euro10 billion immediately to boost the capital reserves of its banks. Another euro25 billion earmarked for the banks will remain in reserve.
The Irish government's public finances will receive euro50 billion, to be drawn upon as necessary.
"It provides Ireland with vital time and space to successfully and conclusively address the unprecedented problems that we've been dealing with since this global economic crisis began," said Irish Prime Minister Brian Cowen at a press conference in Dublin.
The statement said the International Monetary Fund, the 16 eurozone nations and the European Commission will be involved. Britain, Sweden and Denmark will offer bilateral loans.
The statement says the average interest rate Ireland will is 5.8 percent. This total reflects higher rates to be charged by EU sources, and lower rates from IMF and national donors.
With 10-year bond yields averaging over 7.5 percent in Greece, Ireland, Portugal, Spain and Italy on Nov. 26, European leaders are fighting to prevent the spread of Ireland’s fiscal woes from threatening the survival of the 12-year-old euro.
“We have to discuss the broader ramifications of the current crisis and we have to discuss a systemic response to this crisis,” EU Economic and Monetary Affairs Commissioner Olli Rehn before the meeting that was only announced this morning.
Ireland became the second euro country to seek a rescue after the Greek debt crisis earlier this year destabilized the currency and forced the EU to set up a 750 billion-euro rescue fund backed by the International Monetary Fund.
Leaders including Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso, Jean-Claude Juncker, head of the euro-area finance ministers group, German Chancellor Angela Merkel and French President Nicolas Sarkozy held telephone talks before today’s meeting, the EU said.
“The euro is under threat here,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “The market has got it into its head that it is going to pick off one country at a time.”
Dublin Protests
Ireland wants to stamp out the “uncertainty” that’s unsettling euro-area investors, Energy Minister Eamon Ryan told Dublin-based broadcaster RTE yesterday as more than 50,000 people took to the streets of Dublin to protest budget cuts.
As the crisis that began in Greece engulfs Ireland and threatens to pull down Portugal and Spain, investors are looking for today’s meeting to provide details on Ireland’s interest rate and the fate of senior bondholders in the country’s banks.
Ryan said yesterday that a Nov. 25 report by RTE that Ireland may pay as much as 6.7 percent interest for nine-year loans was “inaccurate.”
The Irish government is “confident” it can conclude a “substantial package” with the EU and the IMF today, John Curran, a government spokesman, said in an interview with RTE.
Cowen’s Government
Prime Minister Brian Cowen has overseen the collapse of Ireland’s banking system and national finances after a 10-year property bubble burst, the economy tumbled into recession and unemployment surged close to 14 percent. Cowen’s government is also unraveling. The Green Party, a junior coalition partner, wants January elections and some lawmakers from his own party are slamming his leadership.
“Ireland must not dance to the tune of the ECB and IMF and run the risk of squandering our future by rushing any decision regarding borrowings or repayment terms in the next 24 hours,” Ned O’Keefe, a lawmaker from Cowen’s ruling Fianna Fail party, said in a statement yesterday.
Ireland’s government plans to cut spending by about 20 percent and raise taxes over the next four years to reduce its budget deficit to 3 percent of gross domestic product by 2014, from 32 percent this year, when 31 billion euros in capital support for banks are included. The government expects tax revenue for this year to be 31.5 billion euros, it said on Nov. 24.
Protesters cheered yesterday on Dublin’s O’Connell Street when Siobhán O’Donoghue, director of Migrants Rights Center Ireland, tore up a copy of the government’s four-year tax and spending plan, and called for a general election before the announcement of next year’s budget on Dec. 7.
Paying the Bill
Ireland has been brought “to its knees” by the government and bankers, Jack O’Connor, head of Ireland’s umbrella organization for labor unions, told the crowd. “Several generations of Irish men and women” will have to foot the bill, he said.
The need for a pact is intensifying as Irish banks’ capital dwindles. Allied Irish Banks Plc and Bank of Ireland Plc bonds fell Nov. 26 on concern the government will abandon a pledge to protect senior bondholders and force them to share the bailout costs. Ireland’s Sunday Business Post and the Sunday Tribune newspapers today reported that the ECB vetoed hurting senior bond holders.
Britain, the largest EU country not using the euro, plans to offer aid to Ireland because “it’s in everyone’s national interest and it’s in Britain’s national interest that we get some economic stability in Ireland and indeed across the euro zone,” Chancellor of the Exchequer George Osborne said in Brussels.
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