In humiliating turnaround, Ireland is seeking multibillion bailout

After weeks of denying it needed a bailout, Ireland on Sunday became the second European country to ask for a multibillion euro emergency loan to help stabilize its debt-ridden banks. Other eurozone countries and the European Central Bank had pushed Dublin to accept help after anxiety over Ireland’s massive bank-bailout bill threatened to spill over to other shaky economies, including Portugal and Spain.

Photo by THE ASSOCIATED PRESS

Photo by THE ASSOCIATED PRESS

DUBLIN, Ireland — After weeks of denying it needed a bailout, Ireland on Sunday became the second European country to ask for a multibillion euro emergency loan to help stabilize its debt-ridden banks.

Other eurozone countries and the European Central Bank had pushed Dublin to accept help after anxiety over Ireland’s massive bank-bailout bill threatened to spill over to other shaky economies, including Portugal and Spain.

The request for help from the European Union and the International Monetary Fund is a humiliating turnaround for the Irish government, which only days ago had denied that such a package was being negotiated or was even necessary.

It also dashes the hopes of other members of the 16-country currency union that the mere existence of a 750 billion-euro (US$1025.55 billion) financial backstop set up in May would suffice to quell concern over several countries’ massive debt levels.

Ireland’s Finance Minister Brian Lenihan refused to give a precise figure on the fund, saying only that it would reach tens of billions of euros.

He denied the figure would top 100 billion euros, as some had speculated.

“I will be recommending to the government that we should apply for this program,” a sombre Lenihan told Irish state broadcaster RTE.

Experts from the EU, the ECB and the IMF in recent days have been digging through the books of Ireland’s biggest banks to find out whether the government would have to pump in more than the 50 billion euros it has already budgeted for the bailout.

Ireland is running a deficit of 19 billion euros, which Lenihan said could not be financed at current market rates.

Lenihan said the money would help Ireland pay its bills and provide a contingency fund to back up the banks, which have been hemorrhaging cash since the country’s real estate boom crashed in 2008.

The interest rate on Ireland’s 10-year bonds surged to above eight per cent in recent weeks, after the government again had to revise up the final cost of the bank bailout and economists raised doubts that the Irish economy could grow fast enough to pay off the debt.

“Clearly we want to borrow for much less than that,” Lenihan said Sunday.

Although the government has insisted that it has enough cash on hand until the middle of 2011, analysts are concerned that the discovery of further holes in the banks’ balance sheet could suddenly drive up costs.

Market jitters had also begun to spread, raising borrowing costs for Ireland and Spain and weighing on the value of the euro.

After the Irish cabinet has approved the loan application, Irish, EU and IMF officials will negotiate the details of the bailout. The first portion of the loan might come from the European Commission, the EU’s executive; after that the IMF and a facility funded by eurozone nations would raise money in the international debt markets. The European Commission declined to comment on Ireland’s request Sunday. The European Financial Stability Facility wasn’t immediately available for comment.

The Irish rescue is the latest act in Europe’s yearlong drama to prevent mounting debts and deficits from overwhelming the weakest members of the eurozone. Greece was saved from bankruptcy in May, and analysts say Portugal, which some argue has done less than the Irish to bring debt and deficits back under control, could be next.

Ireland is moving aggressively to slash 15 billion euros from its annual deficits, an unprecedented austerity push which — it had been hoped — would save Dublin from seeking a bailout.

The office of Prime Minister Brian Cowen said the 15-member cabinet would put the finishing touches on the austerity plan Sunday. It has been in the works since September, runs to 160 pages and is expected to be publicly unveiled Tuesday.

Both Cowen and Lenihan stressed that Ireland’s 12.5 per cent rate of tax on business profits — its most powerful lure for attracting and keeping 600 U.S. companies based here — would not be touched no matter what happened. France, Germany and other eurozone members have repeatedly criticized the rate as unfair and say it should be raised now given the depth of Ireland’s red ink.

The 2011 budget faces a difficult passage through parliament when it is unveiled Dec. 7. Cowen has an undependable three-vote majority. It is expected to be reduced to two following Thursday’s byelection to fill a seat that had been left empty for 17 months.

Analysts expect Cowen’s Fianna Fail party to lose that byelection as well as three others tentatively scheduled for the spring. That would leave him without a majority and force an early election.

Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland’s cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits — and called for Fianna Fail’s destruction at the next election.

“Slaughter them after Christmas,” the Sunday Independent’s lead editorial urged.

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