DUBLIN/BRUSSELS, (Reuters) – The EU and IMF agreed yetserday to help bail out Ireland with loans to tackle its banking and budget crisis in a bid to protect Europe’s financial stability. Ireland, facing widespread public anger over its handling of the crisis, formally requested the aid on Sunday evening.
“The European authorities have agreed to our request,” Prime Minis-ter Brian Cowen said. “I expect that agreement to be finalised shortly, within the next few weeks.”
The size of the rescue by the European Union and the Inter-national Monetary Fund has yet to be negotiated but is likely to be smaller than Greece’s 110 billion euro ($150 billion) bailout last May.
“I would say we are talking about 80-90 billion euros,” a senior EU source said, adding that this sum would include money to support the Irish banking sector.
EU Economic and Monetary Affairs Commissioner Olli Rehn said the European Commission, European Central Bank and IMF would prepare a three-year package of loans by the end of the month.
“Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” Rehn told Reuters.
“The programme under preparation will address both the fiscal challenges of the Irish economy and the potential future capital needs of the banking sector in a decisive manner.”
Britain, which is not part of the euro zone, said it would offer some 7 billion pounds ($11.19 billion) in bilateral aid.
EU policymakers have feared that Ireland’s problems might spread to other euro zone members with large budget deficits such as Spain and Portugal, threatening a systemic crisis.
In Berlin, German Finance Minister Wolfgang Schaeuble played down this risk. “If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects,” he told ZDF television.
Portuguese Finance Minister Fernando Teixeira dos Santos said the fact that Ireland would get significant aid “reduces uncertainty and reinforces market confidence”.
But some economists were less optimistic.
“I think it means Portugal is next (to request help). I don’t know if it will happen before the end of the year or after, but it’s almost inevitable now,” said Filipe Garcia at Informacao de Mercados Financeiros in Porto.
“I don’t know what the markets will say tomorrow,” said Pedro Schwartz at San Pablo University in Madrid. “If Portugal is forced to take a bailout then they’ll turn their attention to Spain … I think Spain is differentiated but they’re not out of the woods. And the euro in general is not out of the woods.”
The U.S. Treasury welcomed Ireland’s move and said it would “continue working closely with our European counterparts and the IMF to strengthen market stability and the global recovery”.
In Toronto, finance ministers from the Group of Seven (G7) wealthy nations said Ireland’s decision and the action taken by Europe and the IMF would help to “maintain market stability, and safeguard the global recovery”.
Ireland’s government said a central element of the programme would be “to support further deep restructuring and the restoration of the long-term viability and financial health of the Irish banking system”.
