http://www.nytimes.com/2010/11/22/bu...adlines&emc=a2
After Months of Resisting, Ireland Applies for Bailout
By LANDON THOMAS Jr.
Published: November 21, 2010
DUBLIN — Ireland has formally applied for a rescue package worth more than $100 billion, after months of trying to survive its financial crisis with austerity measures and strict budgetary planning. The much-anticipated step gave a lift Monday to global stocks as well as the euro.
European Union officials, who had been pushing Ireland to accept help, quickly agreed to the request late Sunday, committing a staggering amount of funds to an ailing member for the second time in six months.
The total amount of the package was not announced, but several officials said it would be €80 billion to €90 billion, or $109 billion to $123 billion. Last spring, Europe disbursed €110 billion to Greece to save it from bankruptcy.
On Monday, the British Chancellor of the Exchequer George Osborne said Britain’s share would be around £7 billion, or $11 billion, via bilateral aid to Ireland as well as through its I.M.F. commitments.
“We are not part of the euro and don’t want to be part of the euro,” Mr. Osborne told the BBC. “But Ireland is our very closest economic neighbor so I judged it to be in our national interest to be part of the international efforts to help the Irish.”
In early trading Monday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.8 percent, while the FTSE 100 index in London rose 0.6 percent. The euro rose to $1.3747 from $1.3673 late Friday in New York.
Bond prices reacted positively as well. The Irish 10-year yield fell 18 basis points, but — at 7. 73 percent — still carried a hefty premium to the comparable German bond, the European benchmark, which ticked up 2 basis points to 2.72 percent.
“It’s a step in the right direction,” Henk Potts, a fund manager at Barclays Stockbrokers in London, said of the Ireland rescue, “but we need to see more detail,” particularly on how much money is actually on the table and how it will be distributed. Those details will be worked out over the coming days.
“E.U. officials may have won the battle,” Mr. Potts said, “but the war is still to be fought.”
The Irish finance minister, Brian Lenihan, said Monday that the rescue package could quickly put the nation back on course to borrow money in international bond markets.
“The view in the discussions to date has been that the provision of this large facility may enable Ireland to return to the bond markets very quickly,” Mr. Lenihan told the Irish national broadcaster RTE on Monday.
The loans to Ireland were necessary in large part because of the faltering state of the nation’s banking system, underscoring the extent to which ailing banks remain a threat to recovery two years after the financial crisis rippled through economies and pressured banks around the world into accepting bailouts.
Ireland’s aid will come from a rescue mechanism worth roughly $1 trillion that was set up in May by the E.U. and the I.M.F. to help euro zone countries spiraling toward default.
Government officials hope that the large commitment of money will calm investors and keep the crisis from spreading to Portugal and even Spain. It was fear of a market panic and looming contagion that prompted officials to press Ireland to accept aid early before its debt problem got out of control.
Some economists point out that the yields Greece must pay on its bonds are higher now than before its rescue, raising concerns that confidence in the fiscal health of troubled countries remains low.
Others, however, say that decisive action is what is needed to shift momentum toward recovery. “This may be an inflection point, when we stop digging a hole and start creating the conditions for reversing where we have slipped to,” said Pat Cox, an economist and former president of the European Parliament.
Prime Minister Brian Cowen said at a news conference on Sunday night that there would be two funds. One will back up the country’s failing banks, and another will allow Ireland to continue government operations without turning to the bond markets for help, something Dublin has said it cannot afford. The package should allow Ireland to operate without funds from the markets for as long as three years.
The request for help was a humbling turnabout for Ireland, which just last week was insisting it could manage its own finances.
It does not view itself as being as profligate or irresponsible as Greece was in running up deficits, (NB: Right. All you had was crazy tax policies and a stubborn refusal to turn down subsidies from the EU that allowed the creation of a monster bubble. I mean, I missed the Greek problem but I saw the Irish and Spanish one coming from afar) and has been preparing a four-year budget plan filled with sharp cutbacks that is intended to reduce its deficit to 3 percent, from 32 percent, of gross domestic product.
But the Irish government has been sinking further and further into debt since its 2008 decision to protect its banks from all losses. The banking system had become so weakened that it could not afford to wait any longer for help.
“This is a difficult time for the country,” Mr. Cowen said. “We have seen abnormal market conditions, so we have had to step out of the markets. We are determined to deal with the issues that have arisen, and we will soon have our public finances in order.”
While a precise breakdown was not given, analysts and people involved in the talks said that about €15 billion was likely to go to backstop the banks. As much as €60 billion would go to Ireland’s annual budget deficit of €19 billion for the next three years.
Mr. Cowen said that a negotiation would begin with the I.M.F. to discuss the specifics of the loan, although it was made clear that the interest rate would be lower than the 8 percent demanded by the market.
The quicker than expected action over the weekend was prompted by fears of a bank run when the markets open Monday morning, people briefed on the discussions said.
As much as €25 billion has flown from large banks like Allied Irish and Anglo Irish in the past months and officials say that the pace had quickened in the last week.
Mr. Cowen said that the government’s budget plan would involve €15 billion of savings — €5 billion in tax hikes and the rest in spending cuts. He said the plan would be published Wednesday and the budget issued on Dec. 7. Ireland will not be required to raise its low corporate tax rate of 12.5 percent, something it had strongly resisted.
“The I.M.F. will not micromanage the Irish economy,” said Mr. Cowen, in response to questions that the government was being held hostage by the I.M.F. “And we are not ceding any policy sovereignty.”
Mr. Cowen, a garrulous man with a rough and ready common touch, also served as finance minister during the Irish boom this decade. During the news conference, he was hit with a number of tough questions and accusations from journalists — a reflection of the mounting anger at the banks and real estate developers, who are generally perceived to be responsible for the three consecutive years of negative growth that have battered Irish citizens.
“I have taken every decision in the public interest,” he said, remaining calm. “But when circumstances changed, our policies had to as well.”
Banks, which issued loans recklessly during the real estate boom, have losses of about €70 billion, almost half the country’s economic output. A new set of bank stress tests will be imposed, and the number of banks will be pared down, officials said.
So far, there have been few strikes in Ireland. People have been conditioned to believe that the deficit must be cut and that Ireland, as a small open economy, has little choice but to pay its debts and take the tough policy choices.
But there is likely to be a limit to this patience as new spending cuts hit social services that by and large have remained protected. Irish unemployment is around 12 percent, and services like universal child benefits remain generous by European standards.
After Months of Resisting, Ireland Applies for Bailout
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