x Abu Dhabi, UAEFriday 21 July 2017

EU, IMF and Britain ride to Ireland's financial rescue

The EU agrees to provide between ¿80 billion (Dh401.08bn) and ¿90bn to Ireland in the latest rescue of a sovereign debtor by international financial institutions.

The EU has agreed to provide between €80 billion (Dh401.08bn) and €90bn to Ireland in the latest rescue of a sovereign debtor by international financial institutions.

The exact terms of the package have not been finalised as the Irish government is still negotiating conditions with European authorities and the IMF.

A deal is expected by the end of the month.

In addition to aid from euro-zone governments and the IMF, Ireland is also expected to borrow about £7bn (Dh41.07bn) from the British government in the form of bilateral loans and contributions to the international rescue fund.

Confirmation of the bailout, coming after weeks of speculation and denial that the country needed to be bailed out, initially strengthened the euro yesterday, which had hit a seven-week low against the dollar last week.

But continuing fears of further contagion from the Irish financial crisis wiped out the euro's early gains. Yields on Portuguese benchmark debt edged higher on speculation that the country will be the next to seek financial assistance from international authorities. Spain is also on the at-risk list.

"Speculative actions against Portugal and Spain are not justified, though [an approach for emergency funding] can't be excluded," said Jean Claude Juncker, the prime minister of Luxembourg.

The suggested size of the Irish package is lower than some had feared and some way off the €110bn package negotiated by Greece earlier this year.

But, in terms of its relative size, it could be bigger, amounting to 60 per cent of GDP, compared with 47 per cent for Greece's bailout.

Moody's Investors Services said a "multi-notch" downgrade in Ireland's "Aa2" sovereign credit rating was "most likely".

Confirmation of the rescue also threatened further political uncertainty in Ireland, with one party of the coalition government resigning and asking Brian Cowen, the prime minister, to call an early general election. Tomorrow, the government will unveil its own four-year economic strategy, which is expected to cut about €15bn from the economy in tax rises and reductions in public sector spending.

There has been no public statement on what the Irish regard as the keystone of their strategy for economic recovery - the 12.5 per cent corporate tax rate that makes the country the most competitive in Europe in terms of company tax regimes. Some of the pressure to raise the rate eased with comments from French officials that Ireland might be allowed to keep its low tax rate.

The Irish crisis was sparked by the collapse of the country's property sector in 2008 and the heavy exposure of its financial and banking system to property and construction. Most of the country's liabilities are in the form of property-related debt incurred by the banks.

fkane@thenational.ae