Markets to react to Irish bailout
Published 29/11/2010 | 04:22
The international money markets are to give their verdict on the 85 billion euro (£72.1bn) bailout of the Irish economy from the International Monetary Fund (IMF) and Europe.
The rescue package was approved at an emergency meeting of European Union finance ministers in Brussels.
The deal was struck the day after 50,000 protesters marched through the streets of Dublin against the country's drastic austerity measures.
Irish prime minister Brian Cowen warned that without the loan, pending tax hikes and spending cuts would be more severe. He said it was essential for the country and in the best interest of its people and the eurozone, adding: "It allows us to move forward with secure funding for our essential public services, for our welfare state, for the most vulnerable members of society that depend on them."
The overall loan facility includes up to 35 billion euro (£29.4bn) to support the banking system - 10 billion euro (£8.4bn) of which will be drawn down immediately for the recapitalisation at a rate of 5.8%.
Some 50 billion euro (£42bn) will cover financing the state. Of the 85 billion euro, Ireland itself will contribute 17.5 billion (£14.7bn) by raiding pension funds to prop up the ailing banks.
Opposition politicians claimed the bail-out agreement amounts to a national sell-out that will leave the country crippled with debt.
The Irish government applied for the loan last Sunday when it conceded the bank crisis was too big for the country. Mr Cowen revealed the banking sector will be downsized and restructured under the terms of the package.
However the bail-out does not provide for bondholders to take a hit, but the system will be replaced in 2013 when a new mechanism will mean bondholders face funding a share of any more bail-outs.
Dominique Strauss-Kahn, IMF managing director, said Irish authorities had proposed a clear and realistic package of policies to restore Ireland's banking system to health and put its public finances on a sound footing. "Supported by substantial financing, this program can underpin market confidence and bring Ireland's economy back on track," he added.