|Ajai Chopra (left), deputy director of the IMF’s European Department, headed to the Central Bank of Ireland yesterday. (Peter Morrison/Associated Press)|
Ireland edges closer to a bailout by the EU
DUBLIN — Ireland edged toward taking a European Union bailout to bolster its debt-crippled banks — but the prospect offered little reassurance that other corners of Europe will be able to cope with crushing levels of government debt.
After Greece and probably Ireland, analysts say, Portugal may next in the 16-nation eurozone to need aid.
Specialists from the European Commission, European Central Bank, and International Monetary Fund converged on Dublin yesterday to explore terms of a possible bailout. European officials agreed to send them Tuesday, after weeks of Irish officials denying the country needs emergency aid. Talks are expected to run into next week.
Finance Minister Brian Lenihan insisted Ireland’s government needs no money itself because it is fully funded through mid-2011. But he would welcome a “contingency capital fund’’ — in effect, a credit line — to backstop the country’s troubled banks.
“The banks grew to such a size that they became too unmanageable . . . And it’s clear that we will need some form of external assistance to address the difficulties,’’ Lenihan said.
The government appeared determined to defend its prerogatives.
Deputy Prime Minister Mary Coughlan said avoiding an increase in Ireland’s 12.5 percent corporate tax rate “is nonnegotiable.’’ It is a key attraction for businesses, but EU heavyweights such as Germany and France don’t like the tax because theirs are higher. Her position is widely supported in Ireland but has been questioned elsewhere.
“When does denial turn into delusion?’’ Joan Burton, finance spokeswoman of the opposition Labour Party, said during a parliamentary debate. She accused the government of lying to the public about the inevitability of a bailout.
Across the eurozone, analysts say, debt-burdened governments are living in denial about their ability to drum up fresh financing. Weak growth means Greece remains vulnerable to default, or it may need a second rescue when its current EU-IMF loans come due in 2013.
Portugal and Spain are hoping interest rates on their bonds will fall once the European Union and IMF deal with the concerns about Ireland.
Losses at five Irish banks necessitated a $62 billion government bailout that has pushed the Irish deficit to an unprecedented 32 percent of GDP.
Irish Central Bank governor Patrick Honohan forecast that Ireland would negotiate a loan facility with the EU and IMF worth “tens of billions.’’
Ireland two months ago quit the bond market, citing the punitive rates being demanded, but Spain, Italy, Portugal, and Greece have not. Paying progressively higher rates can leave a country unable to roll over its debt, or borrow to pay off expiring bonds.