Bailing Out Ireland – The Inside Story

A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources says on Friday, but experts warns that a rescue may not be enough to prevent contagion in the single currency bloc. Still, the Irish government is hesitating.

“As long as the fundamentals don’t improve, the pressure will continue on other countries too.”

Daniel Gros


The euro rose and the risk premium investors demand to buy Irish and other peripheral euro zone debt – instead of benchmark German bonds – narrowed Friday as a sign of optimism that an aid deal for Dublin will be sealed soon.

But a poll of participants at a high-level banking congress in Frankfurt showed that nearly three-quarters believed the crisis that has shaken the euro zone for a full year would rage on even after an Irish rescue and ensnare other financially weak countries such as Portugal. Reuters reports.

“As long as the fundamentals don’t improve, the pressure will continue on other countries too,” Daniel Gros, heads of the Center of European Policy Studies, says in an interview with Reuters Insider TV.

“The problem is that no problems are currently being solved. Many believe that the euro zone is just moving from one crisis to the next.”

Ireland’s central bank chief has acknowledged that the country needs a loan running into the tens of billions of euros to shore up an extremely fragile banking sector that has grown dependent on ECB funds.

Time Is NOT On Your Side

Reflecting concerns among other euro zone periphery countries that Ireland’s financial troubles could spread, Greece’s finance minister, George Papaconstantinou. is  pushing Dublin to move fast.

“We are now at a point where decisions have to be taken,” he told bankers at a congress in Frankfurt. “Time is of the essence.”

Sources tell Reuters that Ireland may need assistance of between 45 billion and 90 billion euros, depending on whether it needs help only for its banks or for public debt as well.

So why is the Irish government dragging its feet? Is it so embarrassed or fearful of risking sovereign control?

Or – is Ireland in fact in a position to reject an aid package from the EU or is it simply buying time?

Al Jazeera have just released this report, talking to Jim Rogers, among others:

 

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Fitch Comments On Irish Crisis

“As previously stated, Fitch Ratings says that its current Ireland sovereign rating of ‘A+’ with a Negative Outlook is premised on the Irish government’s commitment to fiscal consolidation, its strong liquidity position, improving external accounts and the measures it had taken to restructure the Irish banking system,” the agency writes in a statement.

Adding: “However, it is now evident that the actions taken in September have not succeeded in restoring confidence in the banking sector. Despite substantial injections of public capital into Irish banks and the extension of the issuance window for bank guarantees, Irish banks have been struggling to secure market funding and rollover existing debt, rendering them almost wholly reliant on ECB and Central Bank of Ireland liquidity support – some EUR130 billion and EUR35 billion respectively according to the latest available figures.”

While losses from commercial real estate lending appear to have been fully recognised with the transfer of related assets to NAMA (National Asset Management Agency) and additional capital injections into Irish banks announced on the 30 September, there is considerable uncertainty over the potential for further bank losses on other assets, including from residential mortgage lending, Fitch points out.

Official estimates suggest around 10% of residential mortgages are either in arrears or have rescheduled and continue to rise, though more positively, repossession rates remain relatively low.

To underpin continuing financial support for the banking sector and further measures to restore confidence, the Irish government is expected to agree an external financial support package with the EU and IMF in the near future.

“Fitch will review Ireland’s sovereign ratings in the light of any package agreed with the IMF and EU. The outcome of such a review will be influenced, amongst other factors, by the financial terms of any assistance provided and their fiscal implications; the agreed policy programme; and the likelihood that it would allow Irish banks and in particular the government to regain access to market funding at an affordable cost,” David Riley, Fitch’s Group Managing Director, writes.

 

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