Ireland’s negotiations over an 85 billion-euro ($113 billion) aid package came down to setting the interest rate it will pay on emergency loans as European finance ministers battled to contain the fiscal crisis.
A “staff-level” accord on Ireland’s aid will be endorsed today, European Union Economic and Monetary Commissioner Olli Rehn said today in Brussels. French Finance Minister Christine Lagarde said Ireland’s interest rate is the only “little detail” to be nailed down.
With 10-year bond yields averaging over 7.5 percent in Greece, Ireland, Portugal, Spain and Italy on Nov. 26, European leaders are fighting to prevent the spread of Ireland’s fiscal woes from threatening the survival of the 12-year-old euro.
“We have to discuss the broader ramifications of the current crisis and we have to discuss a systemic response to this crisis,” Rehn told reporters as the officials gathered in Brussels for a meeting that was only announced this morning.
European Central Bank President Jean-Claude Trichet made no comment on the way in to today’s meeting, which is slated to end in late afternoon. Spain, the fourth-largest economy in the 16-nation euro region, doesn’t need a bailout, Spanish Economy Minister Elena Salgado said.
Leaders including Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso, Jean-Claude Juncker, head of the euro-area finance ministers group, German Chancellor Angela Merkel and French President Nicolas Sarkozy held telephone consultations before today’s meeting, the EU said in a statement.
“The euro is under threat here,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “The market has got it into its head that it is going to pick off one country at a time.”
Ireland wants to stamp out the “uncertainty” that’s unsettling euro-area investors, Energy Minister Eamon Ryan told Dublin-based broadcaster RTE yesterday as more than 50,000 people took to the streets of Dublin to protest budget cuts.
As the crisis that began in Greece engulfs Ireland and threatens to pull down Portugal and Spain, investors are looking for today’s meeting to provide details on Ireland’s interest rate and the fate of senior bondholders in the country’s banks.
Ryan said yesterday that a Nov. 25 report by RTE that Ireland may pay as much as 6.7 percent interest for nine-year loans was “inaccurate.”
The Irish government is “confident” it can conclude a “substantial package” with the EU and the IMF today, John Curran, a government spokesman, said in an interview with RTE.
Prime Minister Brian Cowen has overseen the collapse of Ireland’s banking system and national finances after a 10-year property bubble burst, the economy tumbled into recession and unemployment surged close to 14 percent. Cowen’s government is also unraveling. The Green Party, a junior coalition partner, wants January elections and some lawmakers from his own party are slamming his leadership.
Ireland is set to become the second euro country to seek a rescue after the Greek debt crisis earlier this year destabilized the currency and forced the EU to set up a 750 billion-euro rescue fund backed by the International Monetary Fund.
“Ireland must not dance to the tune of the ECB and IMF and run the risk of squandering our future by rushing any decision regarding borrowings or repayment terms in the next 24 hours,” Ned O’Keefe, a lawmaker from Cowen’s ruling Fianna Fail party, said in a statement yesterday.
Ireland’s government plans to cut spending by about 20 percent and raise taxes over the next four years to reduce its budget deficit to 3 percent of gross domestic product by 2014, from 32 percent this year, when 31 billion euros in capital support for banks are included. The government expects tax revenue for this year to be 31.5 billion euros, it said on Nov. 24.
Protesters cheered yesterday on Dublin’s O’Connell Street when Siobhán O’Donoghue, director of Migrants Rights Center Ireland, tore up a copy of the government’s four-year tax and spending plan, and called for a general election before the announcement of next year’s budget on Dec. 7.
Ireland has been brought “to its knees” by the government and bankers, Jack O’Connor, head of Ireland’s umbrella organization for labor unions, told the crowd. “Several generations of Irish men and women” will have to foot the bill, he said.
The need for a pact is intensifying as Irish banks’ capital dwindles. Allied Irish Banks Plc and Bank of Ireland Plc bonds fell Nov. 26 on concern the government will abandon a pledge to protect senior bondholders and force them to share the bailout costs. Ireland’s Sunday Business Post and the Sunday Tribune newspapers today reported that the ECB vetoed hurting senior bond holders.
Britain, the largest EU country not using the euro, plans to offer aid to Ireland because “it’s in everyone’s national interest and it’s in Britain’s national interest that we get some economic stability in Ireland and indeed across the euro zone,” Chancellor of the Exchequer George Osborne said in Brussels.