DUBLIN // Ireland has reluctantly conceded that it may accept a substantial aid package from international lenders to rescue its beleaguered banks and shore up the nation's finances.
The admission came as talks got underway in Dublin yesterday with an EU-led technical team preparing a rescue fund which European policy makers want Ireland to accept in a bid to prevent contagion spreading throughout the euro zone.
Brian Lenihan, Ireland's finance minister, became the first government official to openly admit to the possibility of a bailout loan when he told the Irish parliament yesterday that if "a substantial contingency fund" arose from talks with the International Monetary Fund and the European Union, it would be a "very desirable outcome".
He said no agreement has yet been reached.
Earlier, the Irish Central Bank governor, Patrick Honohan, said he expected the talks to result in a loan offer of "tens of billions" of euros, and that Ireland would probably pay an interest rate close to 5 per cent - similar to the rate offered to Greece when it requested a bailout last April.
"We're talking about a very substantial loan for sure - tens of billions, yes," Mr Honohan told Irish state radio, acknowledging that there had been substantial outflows of funds from the Irish banking sector since April.
The prospect of an EU/IMF rescue package has loomed over the country since 2008, following the spectacular collapse of a decade-long property boom and a related banking meltdown which saddled the country with a bank bailout bill of at least €45bn (Dh225bn).
The crisis was exacerbated by the Fianna-Fail led government's decision to issue a blanket guarantee to the banks, which left Irish taxpayers with a potential liability of more than €400 billion.
The arrival of the EU-IMF team in central Dublin yesterday, following crisis talks in Brussels earlier this week, was viewed in many quarters as a humiliating blow to the sovereignty of the Republic of Ireland, less than a century after the 1916 uprising that led to its independence from Britain.
The Irish Times newspaper, the conservative voice of the country's establishment, asked in an editorial yesterday whether this was what the men of 1916 had died for.
"There is the shame of it all. Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund," it said.
"I'm taken aback by the focus on this word 'sovereignty' and I think there's a certain amount of overstatement about the men of 1916 and all that," said Dr Aidan Kane, a lecturer in the Department of Economics at National University of Ireland, Galway.
"This is about trying to provide a solution to the problems, particularly on the banking side, that are too big for us to deal with. The banking crisis is imposing a cost that is too big for us. We can't stand over the guarantee, so this is the mechanism for resolving that."
There are already indications that negotiations in the coming days may be tough for the Irish authorities, who are likely to face pressure to raise the country's ultra-low 12.5 per cent corporation tax rate in return for any assistance package.
Higher-tax countries, including Britain, Germany and France, have long seen the Irish rate as a form of unfair competition.
The deputy prime minister, Mary Coughlan, insisted yesterday that the government would not raise the corporate tax rate. "It's non-negotiable," she said.
Alan McQuaid, the chief economist at Bloxham stockbrokers in Dublin, said the critical issue for the government is "what kind of strings will be attached to any aid that comes our way. Corporation tax is pivotal for Ireland and if we have to raise that dramatically we will have serious questions to ask about whether the economy can grow sufficiently in the years to come".
Some analysts believe Prime Minister Brian Cowen had hoped to delay applying for any aid which would place public finances under EU-IMF supervision ahead of a crucial by-election next week. The poll on November 25 could see the parliamentary majority of his already deeply unpopular coalition reduced from three seats to just two.
While Ireland's government says it is fully funded until the middle of next year, investor concern has mounted in recent weeks about the health of the country's banks, their reliance on European Central Bank funding, and whether they may need additional capital.
Mr Lenihan is due to detail a four-year, €15 billion budget-cutting plan next week and the government will put a 2011 austerity budget to parliament in early December.