Irish cabinet draws up international bailout deal

21st November 2010, Comments 0 comments

Ireland's cabinet drew up its demands for a multi-billion-euro bailout package Sunday as finance ministers from the world's richest nations were to hold emergency talks over the eurozone crisis.

Finance Minister Brian Lenihan said before the emergency cabinet meeting that he would recommend the government apply for the bailout programme as it finalises its own four-year deficit crisis plan.

Irish officials have held four days of tense talks with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) on financial assistance worth tens of billions of euros.

Concerns are growing that the huge deficit racked up by the one-time "Celtic Tiger" as Ireland tried to save its banks could have a knock-on effect on other weak economies like Portugal, echoing the Greek crisis earlier this year.

Greece was forced to take a 110-billion-euro (150-billion-dollar) EU-IMF rescue package.

Both G7 and EU finance ministers were preparing for separate conference calls Sunday evening to discuss the imminent bailout request.

Ireland's finance minister did not specify the size of the bailout he would recommend, but agreed it would run to tens of billions of euros.

"Certainly, it will not be a three-figure sum (in billions)," Lenihan told RTE state radio before the cabinet meeting.

Media reports have speculated the bailout could run between 40 billion to 100 billion euros.

German Finance Minister Wolfgang Schaeuble said Sunday he expected Ireland to make a request for a bailout imminently, but warned that approval was not automatic.

"Ireland has announced (that it will ask for the bailout), but it is not formal yet," Schaeuble said on public television. "Then it must be assessed whether the stability of the eurozone as a whole is at stake, that is the condition. We are not just defending a member state but our common currency."

Schaeuble said that it was important that the Irish government made its request soon so that there would be no a knock-on effect on other weak European economies.

"This was why in recent days many people have pressed Ireland to address its problems more quickly and not to delay, because the danger of contagion grows the longer this takes," Schaeuble said.

On the EU conference call, a diplomatic source told AFP: "The principal objective is to allow the Irish government to explain to us its position after its cabinet meeting."

Diplomatic sources said the G7 ministers will talk after the eurozone and the European Union finance ministers' discussions.

The G7 also brings the United States, Japan and Canada to the table alongside eurozone giants France, Germany and Italy -- as well as Britain, which is not a member of the currency area but which has already offered direct bilateral aid across the Irish Sea.

Britain said Sunday it would be "closely involved" in discussions on the size and form of the rescue package.

"The UK will be closely involved in discussion on the scale and type of assistance as they develop," said a spokesman for the finance ministry.

Lenihan said the Dublin government had to look at various considerations, but "as the responsible minister I believe it is important that this state continues to fund itself in a stable way.

"That economic continuity is preserved. That there is no danger to the borrowing which the state requires to make in its own interest and also, and above all -- and the issue that has been highlighted this week -- that our banking sector is stabilised."

Lenihan said market conditions had been very difficult since late August.

"There was considerable concern both on our part and on the part of the Europeans about this issue," he said.

The domestic four-year plan aims to make 15 billion euros of budget savings by 2014.

The project is a road-map to get Ireland's deficit down below the eurozone target of three percent of gross domestic product, and will involve a front-loading of six billion euros in public spending cuts and tax increases in the December 7 budget.

"The government is finalising today the four-year plan for national recovery. We will publish that plan during the week," Lenihan said.

Reports saying the announcement is expected Tuesday.

Dublin has pumped some 50 billion euros into the country's stricken banks, pushing its public deficit to 32 percent of output -- more than 10 times the EU limit.

The international mission is subjecting Ireland's books to forensic analysis, with Cowen's government trying to deflect fears about a loss of sovereignty while defending a wafer-thin parliamentary majority.

Ireland was thought to be under pressure to compromise on its long-cherished 12.5-percent corporation tax rate, believed by Dublin to be key in attracting foreign investment.

However, "that issue is off the agenda now", Lenihan said.

In the past three years Ireland's public finances have been ravaged by the costly banking sector rescues, a property market meltdown and the global recession.

© 2010 AFP

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