(Sharecast) Ireland’s acceptance last night that it needed an EU/IMF-backed rescue package brought some calm to money markets in early dealings.
The euro is up against the dollar while Asian stock markets improved on hopes it might ease concerns about the rest of the eurozone.
Irish prime minister Brian Cowen made the announcement after an emergency Cabinet meeting in Dublin yesterday.
“The programme will address the budgetary challenges of the Irish economy in a decisive manner, on the basis of the ambitious budgetary adjustment and comprehensive structural reforms that will be contained in the government’s four-year budgetary strategy,” he said in a statement.
“A central element of the programme will also be to support further deep restructuring and the restoration of the long-term viability and financial health of the Irish banking system,” the statement added.
Details over how much funding the Irish will need was not disclosed, but reports this morning quoting European Union sources put the size of the rescue package at between €80-90bn (£68-77bn). Britain and Sweden have also offered to lend money directly to the country in addition to their EU commitments.
Speaking in Brussels, EU finance commissioner Olli Rehn said the loans would be provided to the Republic over a three-year period.
A sizeable chunk of the money will go towards a restructuring of Ireland’s bust banking sector. Some observers suggest that could involve all of the Ireland’s existing banks being swallowed up by the Bank of Ireland, with only it and the Royal Bank of Scotland’s Ulster Bank subsidiary left standing in the country once the process is complete.
It was Ireland’s support of its banking system that caused this current crisis. Ireland’s government guaranteed support to the banks’ depsoitors and creditors, but as its property crisis worsened, that commitment became hugely expensive.
While Ireland itself does not need to refinance until the middle of next year, concern about the health of its banks meant they had become almost totally reliant on the European Central Bank for funding, something the ECB said could not continue.
Ireland is the second EU country to seek EU/IMF funding this year. Greece received €110bn in May after the government was faced with the prospect of bankruptcy.
EU officials and other member states said the deal with Ireland was as much about supporting the eurozone as one country, but concern is already growing that Portugal will be next to get a rescue package with Spain and Italy also possibilities.