Global Biz

EU to back Irish bailout, sketch long-term solution

(Agencies)
Updated: 2010-11-28 23:01

Snow rests on a sign outside the headquarters of AIB bank in south Dublin November 28, 2010. The restructuring of Ireland's banking sector needs to take place at a faster pace, a government minister said on Sunday. [Photo/Agencies]

Convince markets

With anxiety rattling bond markets, the Irish government has been under intense pressure to accept a bailout despite repeatedly saying in recent weeks that it did not need one.

European leaders are hoping that the package for Ireland, drawn from a 750 billion euro rescue fund agreed by the EU in May this year, will convince markets that the crisis can be contained and spare Portugal and Spain -- the next two countries identified as potentially at risk.

"We have to make decisions which show that in the future, we are capable of resisting where there are shocks and turbulence," Belgian Finance Minister Didier Reynders told reporters.

Debt worries have driven the crisis for the past year almost without respite. It has severely dented confidence in the 12-year-old euro currency and produced what amounts to a showdown between European politicians and financial markets.

In a flurry of phone calls over the weekend, French President Nicolas Sarkozy spoke with German Chancellor Angela Merkel and the leaders of Italy, Spain and Portugal.

Tens of thousands of Irish took to the streets of Dublin on Saturday to protest the looming bailout, and Irish opposition parties said they would not accept excessive rates of interest.

The parties, Fine Gael and Labour, are expected to rout unpopular Prime Minister Brian Cowen's Fianna Fail party in an election likely within months. They have said they would be bound by a rescue deal but may try to renegotiate details.

Both parties want bond investors who lent money to Irish banks to take on a bigger share of their country's bailout burden, rather than foisting it all on Irish taxpayers.

Jitters sent the shares of European banks which hold the debt of Irish banks tumbling on Friday. The euro also fell to a two-month low against the dollar and the borrowing costs of Ireland, Portugal and Spain stood near record highs.

Portugal and Spain

European officials have been at pains to play down the links between Ireland and Portugal, widely seen as the next euro zone "domino" at risk. Troubles in Portugal could spread quickly to its larger neighbour Spain because of their close economic ties.

Unlike the other financially weak countries on the euro zone's southern periphery, Spain is on track to meet its deficit reduction targets and Prime Minister Jose Luis Rodriguez Zapatero has ruled out seeking aid.

Nevertheless, the government in Madrid has taken several steps to reassure markets about its finances in recent days, announcing that it will publish monthly updates on its public debt and move more quickly to reform the pension system.

Greece, which secured a 110 billion euro rescue half a year ago, is struggling to meet its deficit targets. Local newspaper Realnews quoted a senior IMF official on Saturday as saying the country's loan repayment period could be extended by five years to make it easier to service its debt.

Such a move could meet strong public resistance in countries like Germany, which as Europe's largest economy is shouldering the biggest share of the rescues.