Tags: Ireland Pressured on Bailout | Unsure of Amount

Ireland Pressured on Bailout, Unsure of Amount

Friday, 19 Nov 2010 07:33 AM

Ireland came under renewed pressure from euro zone partners on Friday to accept quick support for its banks, but Dublin said it remained unclear for now how much its battered financial institutions required.

A day after Ireland's central bank chief acknowledged the country needed a loan running into tens of billions of euros to shore up banks that have grown dependent on ECB funds, the euro edged up on expectations of an aid deal and Irish bond spreads narrowed.

Reflecting concerns among other euro zone periphery countries that a delay in cleaning up Ireland's financial mess could sow contagion in the 16-nation single currency bloc, Greece's finance minister pressed Dublin to move fast.

"We are now at a point where decisions have to be taken," George Papaconstantinou told a European banking congress in Frankfurt. "Time is of the essence."

Irish community minister Pat Carey said the government would publish the details of its four-year fiscal plan to save 15 billion euros ($20.55 billion) early next week, before a Nov. 25 by-election which threatens to cut the already razor-thin parliamentary majority of unpopular Prime Minister Brian Cowen.

But Carey said it was impossible to say how much aid Ireland would need until a joint mission of the European Commission, European Central Bank and International Monetary Fund, which arrived in Dublin on Thursday, had gotten to grips with the state of the banks.

"Until such a time as the IMF and others have examined how critical the situation in the banks is, I think it would be impossible to say how much would be required," he said.

Banks in Ireland have been largely shut out of market lending due to concerns about their solvency.

They are almost entirely reliant on funding from the ECB, which reached 130 billion euros by end-October, plus an extra 35 billion euros from the Irish central bank.

Allied Irish, the hardest hit listed Irish bank, is expected to give a trading update later on Friday which will be closely scrutinized for signs of any rise in retail deposit withdrawals.

EU sources have told Reuters Ireland may need assistance of between 45 billion and 90 billion euros, depending on whether it needs help only for its banks or for public debt as well.

Euro Gains, Spreads Narrow

Dublin's borrowing costs have rocketed since late October as concerns about the banks' swelling liabilities and a German-led drive to create a system for restructuring stricken euro zone state debts unsettled investors.

Markets settled down in recent days after it became clear Ireland was open to financial aid.

On Friday, the euro pushed up to $1.37 and the risk premium on Irish 10-year bonds edged down to 5.5 percentage points over German benchmark Bunds.

The bond spreads of other financially weak euro countries like Greece and Portugal also fell.

"There is a degree of calm on anticipation of a near-term resolution for the Irish banks, which has fed to renewed risk-taking and a relief rally for the euro which could potentially rise to $1.40," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

Still, aid talks could drag out if Dublin and the EU are unable to agree on the conditions attached to financial assistance that is expected to come from a 60 billion euro fund set up by the 27-nation bloc in May following a joint EU/IMF rescue for Greece.

Irish Finance Minister Brian Lenihan has insisted the IMF and EU will not have any input into Ireland's budgetary measures, even though EU rules stipulate that assistance programs can only be granted to governments that sign a strict fiscal conditionality agreement.

Ireland's rock-bottom 12.5 percent corporation tax is shaping up as a major bone of contention, with euro zone neighbors pressing Ireland to raise it as part of any deal and Dublin resisting, arguing it is crucial for foreign investment.

Irish Deputy Prime Minister Mary Coughlan told parliament on Thursday that the corporate tax rate, which countries like Britain and Germany have long viewed as a form of unfair competition, was "non-negotiable." The government is under severe pressure from the media and an opposition which smells blood.

In an exchange on Thursday night on RTE radio, an opposition MP from the Labour Party screamed at community minister Carey for ruining the country.

"You ought to be ashamed to show your face in this studio after you have brought our country to penury tonight and after the damage you have brought to people's livelihood," the MP Pat Rabbitte said.

"You have destroyed this economy. It's about time you went because you can do no more damage to this country."

© 2017 Thomson/Reuters. All rights reserved.

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Ireland came under renewed pressure from euro zone partners on Friday to accept quick support for its banks, but Dublin said it remained unclear for now how much its battered financial institutions required. A day after Ireland's central bank chief acknowledged the country...
Ireland Pressured on Bailout,Unsure of Amount
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2010-33-19
 

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