November 21, 2010 / 11:11 AM / 9 years ago

WRAPUP 10-Irish seek aid as Europe tries to ensure stability

 * Three-year package of loans expected by the end of Nov
 * Size expected at 80-90 billion euros
 * EU policymakers fear Ireland's problems might spread
 
 (Releads, adds quotes, background)
 By Jodie Ginsberg and Jan Strupczewski
 DUBLIN/BRUSSELS, Nov 21 (Reuters) - The EU and IMF agreed on
Sunday to help bail out Ireland with loans to tackle the
country's banking and budget crisis in a move aimed at
protecting Europe's wider financial stability.
 Ireland, facing widespread public anger over its handling of
the crisis, formally requested the aid on Sunday evening.
 "The European authorities have agreed to our request," said
Prime Minister Brian Cowen. "I expect that agreement to be
finalised shortly, within the next few weeks."
 The size of the rescue by European authorities and the
International Monetary Fund has yet to be negotiated but is
likely to be smaller than Greece's 110 billion euro ($150
billion) bailout last May.
 "I would say we are talking about 80-90 billion euros," a
senior EU source said, adding that this sum would include money
to support the Irish banking sector.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
TAKE A LOOK-Ireland requests international bailout  [nLDE6AK0G8]
TAKE A LOOK- Europe's debt problems                 [nLDE68T0MG]
Euro zone debt struggle:             r.reuters.com/hyb65p
For Reuters Insider TV show:      link.reuters.com/jar85q
Multimedia on Euro Zone Crisis       r.reuters.com/hus75h
For analysis on how bank bailout would work      [ID:nLDE6AF21W]
For factbox on Irish bank debt                   [ID:nLDE6AH1G6]
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 Economic and Monetary Affairs Commissioner Olli Rehn said
experts from European Commission, European Central Bank and IMF
would prepare a three-year package of loans by the end of the
month.
 "Providing assistance to Ireland is warranted to safeguard
the financial stability in Europe," Rehn told Reuters.
 "The programme under preparation will address both the
fiscal challenges of the Irish economy and the potential future
capital needs of the banking sector in a decisive manner."
 IMF managing director Dominique Strauss-Kahn said
Commission, ECB and IMF officials who are already in Ireland
would begin swift discussions on a multiyear loan.
 Britain, which is not part of the euro zone, said it would
contribute about 7 billion pounds in aid. [ID:nLDE6AK0FZ]
 EU policymakers have feared that Ireland's problems might
spread to other euro zone members with large budget deficits
such as Spain and Portugal, threatening a systemic crisis.
 In Berlin, German Finance Minister Wolfgang Schaeuble played
down this risk. "If we now find the right answer to the Irish
problem, then the chances are great that there will be no
contagion effects," he told ZDF television.
 However, some economists were less optimistic. "I think it
means Portugal is next (to request help). I don't know if it
will happen before the end of the year or after, but it's almost
inevitable now," said Filipe Garcia at Informacao de Mercados
Financeiros in Porto.
 "I don't know what the markets will say tomorrow," said
Pedro Schwartz at San Pablo University in Madrid. "If Portugal
is forced to take a bailout then they'll turn their attention to
Spain ... I think Spain is differentiated but they're not out of
the woods. And the euro in general is not out of the woods." 
 
 SMALLER BANKS
 Ireland's government said a central element of the programme
would be "to support further deep restructuring and the
restoration of the long-term viability and financial health of
the Irish banking system".
 Finance Minister Brian Lenihan told a news conference that
Irish banks would be significantly smaller than they had been
and that they may look at selling non-core assets.
 However, raising Ireland's super-low corporation tax -- a
bone of contention with higher rate euro zone partners -- was
off the agenda, Lenihan said, and was key to future growth. 
 Irish banks, brought to the brink of collapse by exposure to
a property and construction sector that slumped after the global
financial crisis, have grown dependent on ECB funds and suffered
an exodus of deposits over the past six months. [ID:nLDE6AI1I0]
 Fears about the health of the sector have pushed up Irish
borrowing costs, effectively forcing Ireland to seek aid even
though the government is fully funded until mid-2011.
 "I think it will pacify the markets but whether it will
satisfy them in the long-term is another day's work," said Brian
Lucey, associate professor of finance at Trinity College Dublin.
 The euro rose broadly in Asian trading after news of the
planned bailout. The euro rose as high as around $1.3743 EUR=,
up from $1.3683 late in New York on Friday. [FRX/]
 In May, the EU and IMF launched the 110 billion euro rescue
package, the first of a euro zone country, aimed at pulling
Greece back from the brink of bankruptcy. In return, Athens
promised harsh austerity measures that brought large numbers of
Greeks onto the streets in protest. [ID:nLDE6AE1LC]
 Ireland has already implemented a series of austerity
measures over the past two years and said last month it planned
further cuts in spending and tax changes to cut 15 billion euros
from the budget by 2014.
 That four-year fiscal plan will be published later this
week. Local media said the package would include a new property
tax and cuts to the minimum wage, child benefits and job
seekers' allowances. Tax breaks for higher earners may also go.
 Unions have warned further austerity measures could spark
unrest in Ireland. 
 Calls are already growing for the government to stand down
over its handling of the crisis and the main opposition party
said on Sunday it would consider putting forward a vote of
no-confidence in the government, possibly before a Dec.7 budget.
[ID:nLDE6AK0DA]
 A spring election is likely even if the government manages
to pass the first of its austerity budgets next month due to
ruling Fianna Fail's razor-thin parliamentary majority, which is
expected to be cut further in a by-election on Thursday.
 (Additional reporting by Lorraine Turner and Padraic Halpin in
Dublin, Brian Rohan in Berlin; Martin Santa in Bratislava;
Writing by Jodie Ginsberg and David Stamp; Editing by David
Stamp)




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