European finance ministers are racing to conclude an international rescue package for Ireland before markets open to stop the country’s financial crisis from spreading to the rest of the euro region.
The Irish government wants to reach an agreement to stamp out the “uncertainty” that’s unsettling euro region investors, Energy Minister Eamon Ryan told Dublin-based broadcaster RTE yesterday. Finance ministers from the 16 euro nations meet at 1 p.m. in Brussels before a meeting of all 27 EU ministers. European Central Bank President Jean-Claude Trichet will also attend.
Prime Minister Brian Cowen’s government is finalizing a bailout agreement that may amount to 85 billion euros ($113 billion) after more than 50,000 people took to the streets of Dublin yesterday to protest budget cuts. As Ireland’s crisis spreads to Portugal and Spain, investors are looking for details on the interest rate Ireland will pay on its loans and the fate of senior bondholders in the country’s banks.
“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.”
An Irish Finance Ministry spokesman rejected a Reuters report that an agreement has been reached on a bailout.
The average yield investors demand to hold 10-year debt from Greece, Ireland, Portugal, Spain and Italy climbed above 7.5 percent on Nov. 26. The yield on German 10-year bonds was 2.73 percent.
Cowen has overseen the collapse of Ireland’s banking system and national finances after a 10-year property bubble burst, the country fell into a 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. Ryan yesterday said a Nov. 25 report by RTE that Ireland may pay as much as 6.7 percent interest for loans over nine years was “inaccurate.”
“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,” said Ned O’Keefe, a lawmaker from Cowen’s ruling Fianna Fail party, 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 revenues for this year to be 31.5 billion euros, it said 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 budget 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.
U.K. Chancellor of the Exchequer George Osborne is attending the meeting euro-area finance ministers today, a British spokesman said. Britain intends to make a bilteral loan to Ireland and not join the euro-area financing.