Ireland's overstretched banks are in even worse shape than previously thought and need an additional infusion of $34 billion to bring them back to robust enough health to weather another crisis, according to results of a new "stress test" of the Irish financial system.
That amount comes on top of $64 billion that Ireland's government has already poured into failing institutions to keep them from collapsing, an expensive undertaking that forced Dublin to seek a humiliating rescue from the European Union and the International Monetary Fund late last year.
Nonetheless, the Central Bank of Ireland said in its report Thursday that the extra cash injection was imperative as bad loans from the country's property bubble continue to take their toll and as the banks struggle to meet higher standards for cash reserves. The money is to be drawn from the emergency international bailout package, which is worth more than $110 billion.
"The main underlying reason for such a large increase is the need to restore market confidence," said Patrick Honohan, the central bank's governor. "It is a prerequisite to the banks' returning to normal functioning that they should have ample capital to meet even the market's gloomy prognostications."
The four banks needing more funds are among Ireland's largest financial institutions: Allied Irish Banks, the Bank of Ireland, the EBS Building Society and the Irish Life & Permanent.
With the extra cash, the price tag for bailing out Irish banks will be enormous: about $22,000 for every man, woman and child in a country of about 4.5 million people. The added infusion is also likely to mean that virtually all of Ireland's biggest banks will come under majority state ownership.
But analysts hope that the full extent of the banks' plight is now clear with the results of the latest stress tests, with no more nasty surprises lurking around the corner.
"The results should be able to draw a 'line in the sand' and put an upper limit to the recapitalization needs of the Irish banking system," Antonio Garcia Pascual of Barclays Capital wrote in a note to investors.
The government's pledge to prop up the financial system at all costs pushed Ireland to the edge of bankruptcy and created a budget deficit equal to nearly one-third of the country's entire economic output. After denying for weeks that it needed outside help, Dublin was forced in November to seek an international lifeline.
But the immediate relief of the rescue package has not eased fears over the prospects of a long-term recovery for the battered Irish economy.
To shore up investor confidence, the government has approved round after round of austerity measures, but critics warn that the brutal spending cuts only serve to depress the economy further and thereby push up its debt load. Unemployment hovers around 13%, and an estimated 1,000 residents leave Ireland every week from a country haunted by the specter of mass emigration.
Last month, voters angry over Ireland's economic debacle threw out the longtime ruling party, Fianna Fail, in favor of a new government that has vowed to try to persuade the EU and the IMF to ease some of the bailout's conditions, particularly the interest rate of the emergency loans.
But those appeals have so far fallen on deaf ears, in part because of Ireland's refusal to give in to demands from fellow European countries to increase its low corporate tax rate of 12.5%. Ireland's neighbors consider the low tax rate to be an unfair advantage, but Ireland says it is vital to attract foreign investment and jump-start the economy.
Ireland was the second country in the 17-nation Eurozone, after Greece, to ask for a bailout last year. Pressure is mounting almost daily on a third debt-ridden European nation, Portugal, to follow suit.
This week, Portugal's borrowing costs hit a record high for the Eurozone on the open market, well past the level that Lisbon says is sustainable. The situation worsened Thursday with news that the country's budget deficit last year was 8.6% of economic output, far above the government's target rate.