EU leaders implore Ireland to accept bailout
Pressure on Ireland to accept a financial bailout intensified Wednesday as European officials prepared for urgent talks in Dublin to try to beat back the crisis of confidence engulfing the euro.
At a meeting in Brussels, finance ministers from throughout the European Union reiterated their willingness to help Ireland salvage its decimated banking sector, whose losses have left Dublin stumbling under a mountain of public debt.
Adding to the pressure was an unexpected offer of assistance from Britain, which does not belong to the group of 16 nations that use the euro. London had hitherto insisted that it should not be on the hook to rescue ailing economies belonging to the Eurozone, but Chancellor of the Exchequer George Osborne said his country stood ready to help its neighbor across the Irish Sea.
British banks have significant exposure to Irish debt, and the Emerald Isle remains an important market for British exports.
“It’s in Britain’s national interest that the Irish economy is successful and we have a stable banking system,” Osborne told reporters in Brussels.
So far, the Irish government has resisted calls for it to apply for international help from a rescue fund set up in response to the debt crisis triggered this year by Greece’s financial woes. Dublin says it can handle its finances on its own, including bringing down a runaway government deficit equaling 32% of gross domestic product, without a humiliating bailout from its neighbors and the International Monetary Fund.
But European officials fear that Ireland’s refusal to accept help will further destabilize the euro and cause the crisis of confidence to spread to other financially troubled Eurozone nations, such as Portugal and Spain.
International investors, worried that these countries won’t be able to tame their budget deficits and pay their bills, already have driven the euro down to its lowest level against the dollar since September.
For Ireland and Portugal, borrowing costs are approaching unsustainably high levels. Dublin says it has enough money to keep going until the middle of next year, shielding it from having to go on the bond market anytime soon, but the markets have been unimpressed.
Many analysts say that a rescue for Ireland is almost inevitable because of market demands and that Dublin may be playing for time to extract as favorable an outcome as possible from talks beginning Thursday with officials from the EU and the IMF.
For Dublin, that means recognition that its troubles are not a result of government mismanagement of the public purse, as was the case in Greece, but because of Ireland’s banking crisis. Much of the 32% budget gap is the result of the state taking on the debts of big banks that have failed spectacularly with the collapse of Ireland’s real-estate bubble.
Any rescue package could target the banking sector specifically and, therefore, demand less surrender of national sovereignty.
Also, Dublin is eager to preserve its low corporate tax rate of 12.5%, which has been key to attracting multinational companies but which some other European nations complain has given Ireland an unfair advantage.
Julian Callow, chief European economist for Barclays Capital, said a rescue deal would help restore confidence in the Irish government’s ability to rein in its budget gap through deep cuts in public spending.
“It gives a big security blanket to Ireland, especially concerning financing,” Callow said, “but also gives it much greater credibility for fiscal adjustment.”
Dublin has promised to unveil a new retrenchment plan by the end of the month; the plan would come on top of several previous rounds of painful government cutbacks.
Many economists have praised the Irish government for biting the bullet to get its finances in order. But the economy has not revived as strongly as hoped, leading critics to warn that the country is in danger of entering a downward economic spiral of spending cuts and anemic growth.
