Ireland Asks For EU Help Over Banking Crisis

By: Dr. Mike Campbell

Despite protestations that the Irish government did not need to call on the EU and IMF to provide a bailout to ensure that the nation could meet its debt obligations, the Irish bowed to the inevitable at the weekend and have formally requested EU help. The exact details of the provision have yet to emerge, but most analysts believe that the fund will provide €90 billion over the next three years to the Irish Republic. This funding will help the Irish to achieve their goal of bringing the deficit back to the 3% level by 2014.

The money is needed to shore up the financial hole that was caused by the Irish government’s having to bail out the Irish banks in the wake of the bursting of the Celtic tiger’s property bubble. The property crash has seen 50 to 60% wiped off the value of property in the Republic and many property development loans have been defaulted on as the bubble has burst, leaving banks with massive bad debts. The government were left with no option but to support the banks and this has led to an unprecedented public deficit of 32% of GDP. Despite Irish protestations that it had a credible austerity budget worked out and that it could manage to service its debts well into the New Year, yields on Irish bonds sky-rocketed on market worries that this would not be the case. This lead to renewed concerns about the ability of other highly indebted nations (notably, Portugal, Spain and Italy) to meet their obligations and triggered a slide in the value of the Euro.

Initial news of the Irish bailout led to a stock and Euro rally, but that has been reversed because of fresh uncertainties caused by calls from Irish opposition parties and a junior coalition partner for a general election.