Ireland bailout boosts euro but sparks political chaos

22nd November 2010, Comments 0 comments

Ireland was on Monday thrashing out the terms of an international bailout package worth up to 90 billion euros in a deal which boosted the single currency but sparked political turmoil in the country.

After a week insisting it did not require help, Ireland caved in on Sunday and Prime Minister Brian Cowen confirmed the European Union and IMF had agreed to his request for substantial help from the bloc's emergency warchest.

The news had an immediate effect in calming fears about the single European currency, with the euro rising above 1.37 dollars.

But Cowen's beleaguered coalition government appeared to be splintering over the bailout as the Greens, the junior partners in the administration, issued a call for a general election in January.

The Greens said the Irish people "feel misled and betrayed" and said an election was necessary "to safeguard the future prosperity and independence of the Irish people".

The call leaves the government in chaos as it faces a by-election it is likely to lose on Thursday which will further reduce its already slim majority.

Anger mounted in Ireland where furious protesters gathered outside government buildings in Dublin late Sunday and had to be dragged out of the way of ministers' cars, with one protester injured after being struck by a car.

Ireland's request for aid was approved by EU finance ministers during an emergency conference call late Sunday as officials moved to quell fears that the debt-laden nation could spread contagion to weak euro economies.

Finance Minister Brian Lenihan said Ireland was left with no choice but to accept external help because it faced a "very difficult market position" and "an extraordinarily difficult banking crisis" which had "deepened our difficulties immeasurably".

He said one of the key conditions of the deal was that "structural change" was required to Ireland's banking system, but claimed it would be "an intensification of the type of measures (we) have already adopted."

Lenihan said it would take "several weeks" to finalise the exact amount of the bailout and added: "We have not determined a precise figure."

Diplomatic sources in Brussels said the bailout would be between 80 to 90 billion euros (110 to 123 billion dollars).

Cowen said the move "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" contained in a four-year budget plan.

He insisted late Sunday the bailout "should allow a return to a robust and sustainable growth, safeguarding the economic and social position of the people of Ireland."

But in a blow, the Moody's credit rating agency warned it would most likely have to downgrade Irish sovereign debt by several notches in view of the costs of the EU-IMF rescue.

Eurozone and EU finance ministers have agreed in principle to use a 750-billion-euro fund, the European Financial Stability Facility, which was set up in May after a 110-billion-euro EU-IMF bailout of Greece.

Spain, whose far larger economy is also a source of concern for the EU, welcomed the bailout as "good news" and said it was convinced the euro would now "stabilise".

Britain, not part of the 16-country eurozone, said it was considering a separate loan to Ireland of about seven billion pounds (11.2 billion dollars) as part of the rescue.

An angry press said Ireland had been humiliated by performing a U-turn and taking a bailout.

The Irish Independent said the public was "roundly furious at the manner in which the government has 'lied' about the unprecedented events of last week."

In the past three years, Ireland's public finances have been ravaged by a property market meltdown and the global recession. Domestic banking sector rescues have severely restricted the country's room for manoeuvre.

The government is preparing to publish a four-year austerity plan on Wednesday, which is designed to be a road-map to get Ireland's deficit down below the eurozone target of three percent of gross domestic product.

It will involve accelerating six billion euros in public spending cuts and tax increases to be announced in a budget on December 7.

© 2010 AFP

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