Irish Finance Minister Brian Lenihan said he’s proposing to government colleagues today that the country apply for an international bailout.
The comments, in an interview today with Dublin-based broadcaster RTE Radio, followed discussions between Irish officials and counterparts from the International Monetary Fund and European Union in Dublin since Nov. 18.
“Those discussions concluded yesterday evening,” Lenihan said in the interview. “There will be a meeting of the government this afternoon. I will be proposing to my colleagues that they should formally apply for a program.”
Negotiations on a package will “take a number of weeks,” he said.
On what led to the discussions with the EU and the IMF:
“Market conditions have been very difficult since late August. There’ve been ongoing consultations at official level throughout the autumn.”
The issue of a bailout “was not raised in any substantive way” with EU Monetary Affairs Commissioner Olli Rehn when he was in Dublin between Nov. 8 and Nov. 9.
“However, since then the continuing decline in market conditions has impacted on the banking system in particular. There was considerable concern both on our part and the part of the Europeans on this issue.”
On problems in the Irish banking system:
“The cause of the present difficulties has been the crisis in the banking sector. The discussions to date have focused” on the creation of “a contingent fund, a standby facility, of a very large sum. Again, no exact figures have been arrived at because” the EU and IMF “teams are looking through the balance sheets of the different banks and the sum’s a contingent fund sum to display a firepower behind the banks.”
“Of course, we’re talking about tens of billions” of euros.
“Whatever figures are arrived at will not necessarily be drawn down. It’s a figure to demonstrate the kind of support that’s available to back up the Irish banking system as part of the euro system.”
“The banks have been operating with massive support from the European Central Bank and will continue to operate on that basis. But because of the degree of their dependence and support from the European Central Bank, it is essential that we deepen the approach to addressing the structural problems of the banking system.”
“Our European partners have made it very clear that they see that deepening as a deepening of the current approach the government is taking.”
On ECB support for Irish banks:
The ECB “stands behind the Irish banking system. It’s very important that depositors understand that. They’re well funded as part of the euro system, but they can’t remain in that state forever.”
“A detailed structural plan for the resolution of all Irish banking difficulties will be devised as part of the program.”
“The first step will be to do a detailed stress-testing on the institutions concerned and to ensure that their capital positions are robust enough.”
Central Bank Governor Patrick Honohan “dealt with this issue during the week when he made it very clear that, as far as he was concerned, there was adequate capital in the Irish banks, but, again, that matter is subject to these discussions.”
“Banks have to be put in a position where they can attract deposits. Over time, the deposit bases can be built up. Over time the banks can be reshaped.”
“The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector and what our European friends and colleagues have said to us is that they don’t want that to happen either.”
On the Irish sovereignty:
“At present, were we to borrow in the world markets we’d have to be borrowing at in excess of the sum of 8 percent. Clearly we want to borrow for much less than that percentage. As I indicated at all stages we’re funded as a state well into next year.”
“But were the state not in a position to go to the markets, I think everyone knows what the gap is in our annual expenditure. We spend about 19 billion euros ($26 billion) more as a state than we are bringing in in tax and other receipts.”
“So, clearly if the state wasn’t able to borrow this money, then the state wouldn’t be able to function. So it’s very important that we have some assurance.”
“There isn’t a concrete figure you apply for. That’s discussed during negotiations.”
On the size of a bailout package:
“I’ve pointed out, first of all, that in relation to the banks the position is that the fund is a contingency fund. We don’t anticipate that the entire figure will be used up, but it will be a powerful demonstration of firepower behind the banks.”
“Some of that amount may be required in terms of capitalizing the banks. That can only be established after detailed stress tests are done. In relation to the state I’ve pointed out there’s an annual gap of 19 billion euros. First of all, the state doesn’t need to borrow. Again, what we’re talking about is a contingency.”
‘It certainly will not be a three-figure sum.’’
On preserving Ireland’s 12.5 percent corporation tax rate:
“It is important from a political point of view and a national point of view that we safeguard the interests of the state and the interests of the taxpayer at all stages in this process.”
“I very much welcome the fact that” French President Nicolas Sarkozy “indicated yesterday that there’s no question of Ireland’s corporation tax rates being an issue in these discussions and negotiations, as they will become.”
“I very much welcome” German Chancellor Angela Merkel’s “similar statement. That has been the view of the Commission. It has been the view of the United Kingdom authorities and, indeed, it is the view of the IMF as well. So, that issue is off the agenda now.”
On whether there should be a general election:
“I think it is absolutely essential that this country is not plunged into economic chaos. I think it is essential that we publish the plan for economic recovery, which is the only viable plan to put this country back on the road. I think it is essential to enact a budget on Dec. 7. I think they’re the statements that’ll generate confidence in Ireland.”
“I do not believe the Irish people should be plunged into a general election in the middle of such an economic crisis. It would be the height of irresponsibility.”