Ireland Accepts EU, IMF Bailout Package
Dublin, Ireland, United Kingdom (AHN) – Ireland formally accepted over the weekend the international bailout offer of the European Union and the International Monetary Fund. After hedging for a few days and insisting Dublin had sufficient financial resources, Irish authorities gave in to pressure and asked for a loan.
According to reports, the bailout would be $115.5 billion (77 billion pounds). It would be a three-year loan to be used mainly to rescue Ireland’s debt-ridden banks. The U.K. and Sweden are considering extending additional loans to Dublin, aside from the $115.5 billion bailout.
For this bailout, British taxpayers would shell out $11.5 billion (7 billion pounds), at a time when the country itself is implementing tough austerity measures which would lead to the loss of 500,000 public sector jobs over five years.
Britain is bent on assisting Ireland because of the $225 billion (150 billion pounds) exposure of British banks to Ireland.
Irish Prime Minister Brian Cowen asked residents Sunday to support the loan. EU Economic and Financial Affairs Commissioner Olli Rehn said the bailout seeks to protect the financial stability of the continent. With the bailout, Irish banks will be restructured to make them smaller, while some analysts forecast some financial institutions would be nationalized.
Irish Finance Minister Brian Lenihan said Dublin has a running deficit of more than $24 billion (16 billion pounds), which the Irish government could not afford to finance given present market rates and amid issues of solvency of Irish banks. He said the bailout money would mainly serve as a standby fund, which may not 100 percent be necessarily used.
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Irish bailout rumours hit markets
Long-term Irish interest rates soar as austerity cuts seem to have failed to convince international investors
Fears that Ireland could be forced into a Greek-style bailout by the European Union or the International Monetary Fund swept through financial markets today after the beleaguered country’s borrowing costs soared to levels seen as unsustainable by investors.
Long-term Irish interest rates surged to their highest levels since the launch of the single currency amid growing evidence that repeated bouts of budget austerity have failed to convince international investors that the former Celtic Tiger economy can cope with the banking crisis caused by a boom-and-bust in its housing market.
Attempts by Patrick Honohan, the central bank governor, to reassure investors by stressing that the Irish government was already planning the tough fiscal measures the IMF would insist upon backfired and helped push yields on 10-year Irish bonds up by 61 basis points to 8.7%.
“Putting Ireland and the IMF in the same sentence can trigger palpitations in the credit markets,” said Gavan Nolan, a credit analyst at Markit. “Speculation that the Irish government and the IMF have already reached an agreement was doing the rounds.”
The premium that investors demand to buy Irish bonds over the rock-solid German bunds also soared to an all-time high of 615 basis points, or 6.15 percentage points. Panic about Ireland spread to Portugal, whose benchmark 10-year bond yield jumped 30 basis points to 7.2%.
“There will have to be a bailout of some sort in the end, for Ireland and Portugal,” said Ashok Shah, chief investment officer at London & Capital. “The cost of capital is becoming just too much, and the debt levels are already too high. The prospects of deficit reductions mean the economies will probably contract, so cash flows will be more difficult to get. These countries will have to borrow to meet interest payments, that is an unsustainable position to be in. Before they get into this, a solution needs to be found, mainly, going into the stabilisation funds.”
Taoiseach Brian Cowen’s unpopular government has pledged to outline a four-year plan later this month to bring the ballooning budget deficit under control, and to push through €6bn (£5.13bn) in savings in the 2011 budget on 7 December. But financial markets have become concerned both at the government’s wafer-thin majority and the deflationary impact of further tax increases and spending cuts on growth.
bond sell-off was partially triggered by LCH.Clearnet, a London-based clearing house, which made it more expensive to trade Irish bonds amid concerns of a potential debt restructuring.
For months, bondholders have been worried about Ireland’s capacity to pay its deficit, the product of a debt-fuelled decade that ended up with the recent property collapse. Several announcements of drastic budget cuts this year have not been enough to convince the so-called bond vigilantesthat the country would be able to meet its interest payments.
“I don’t see what else they can do, after a certain point, this becomes self-reinforcing – it’s hard to see … those bond yields coming down,” said a fund manager who wanted to remain anonymous. “Ireland has announced various rounds of fiscal tightening and it hasn’t worked, it looks as if investors are just getting out. Once it blows out like this, you see people cutting losses. What can the government do? It looks as if they are going to have to access support.”
Earlier this year, bond investors sold Greek bonds on concerns the government would not be able to pay their debts. The sales lifted borrowing costs to impossible levels, forcing the country into an IMF and EU bailout. To avoid a similar scenario, the EU announced an €750bn emergency fund that countries could access if the markets turned their backs on them, by charging too much interest. “The IMF or the EU are not only providers of funds, but external arbiters that give you credibility, the endorsement,” the fund manager said.
Investors say the Irish situation is unsustainable, despite the government having no immediate need to raise funds. “Irish private sector companies wouldn’t be able to raise money abroad, the government could also suffer a big downgrade, and panic would spread to other countries, such as Portugal,” the fund manager added.
Greece and Portugal have made significant efforts to attract Chinese investors to stabilise their debt markets and to inject cash into their ailing economies. Asked if he would allow Chinese ownership of Irish banks, Honohan said he is “too much an internationalist to say no to that”. Ireland European monetary union IMF Europe Financial crisis Global recession Banking European Union Economics Portugal Greece Elena Moya Larry Elliott guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds
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Major players? China, India get more say in IMF
China and India received long-sought recognition as global economic heavyweights as the International Monetary Fund gave them and other emerging powers a significantly larger role in stabilizing the world economy.
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World Leaders To Commit $11.7 Billion Against AIDS, Killer Diseases
New York, NY, United States (AHN) – The international community has agreed to commit $11.7 billion to combat HIV/AIDS and other deadly diseases during a summit at the United Nation’s headquarters.
Announcing the commitment on behalf of 40 donor nations, corporations and private foundations, U.N. Secretary-General Ban Ki-moon said the commitments send a powerful message at a time when governments across the world tighten their finances through spending cuts at home.
“This shows how seriously world leaders want to do the right thing beyond their borders,” Ban said. His comments came during a conference on Global Fund to Fight AIDS, Tuberculosis and Malaria for 2011 through 2013 in New York City.
“However the demand for funding is likely to out-strip even the impressive commitments today. That means we must continue to mobilize more resources,” Ban added.
Earlier, the Obama administration pledged to contribute a record $4 billion to the fund – an announcement, which had deeply disappointed a non-government organization – Health GAP, which was expecting more from Washington. However, the U.S. State Department said the offer represents a 38 percent rise in Washington’s investment over the preceding three-year period.
“The Obama administration intends to seek $4 billion for the Fund for 2011 through 2013 to continue America’s strong support for this important multilateral partner,” officials said. The department said that pledge would save hundreds of lives by driving necessary reforms and ensuring and making smart and effective investments.
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