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Bailout boosts Ireland banks

But deal angers many taxpayers

Many taxpayers were angered that the bailout required Ireland to use some of its own cash and pension funds as part of the deal. Many taxpayers were angered that the bailout required Ireland to use some of its own cash and pension funds as part of the deal. (Cathal Mcnaughton/ Reuters)
By Shawn Pogatchnik
Associated Press / November 30, 2010

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DUBLIN — Ireland’s international bailout boosted its bank stocks yesterday but outraged many hard-pressed taxpayers, who questioned why the government’s pension reserves must be ravaged as part of a deal that burdens the whole country with the mistakes of a rich elite.

Shares in Ireland’s banks rose sharply as markets were encouraged by the bailout’s immediate focus on injecting about $13 billion into the cash-strapped lenders out of a total of $89 billion in loans.

But the Irish were shocked by a key condition for the rescue — that the government use $23 billion of its own cash and pension reserves to shore up its public finances, which have been overwhelmed by recession and exceptional costs of a runaway bank-bailout effort.

Opposition leaders and economists warned that the EU-IMF credit line’s average interest rate of 5.8 percent would be too high to repay. They also questioned why senior bondholders of Ireland’s banks — chiefly other banks in Britain, Germany, and the United States — still weren’t being asked to bear some costs.

“This is not a rescue plan. It is the longest ransom note in history: Do what we tell you and you may, in time, get your country back,’’ said Fintan O’Toole, a commentator and author who led a weekend protest by labor-union activists in central Dublin against the imminent bailout. He called the average interest rate being demanded “viciously extortionate.’’

The mood on Dublin’s snow-covered streets was just as icy.

“We’ve been screwed by the IMF. It’s going to be years and years until we’re free of this,’’ said Paul Flood, an unemployed 53-year-old Dubliner sheltering from the cold in a pub doorway. “We have to use our own pension reserve, and we’re still being stung with a 5.8 percent interest rate. It sounds ridiculously high.’’

But the government’s transport minister, Noel Dempsey, said the EU-IMF credit line “has taken us out of the situation where we’re at the absolute mercy of the markets.’’

The high rate on the loans is also to discourage other countries from looking for cheap financing, said Patrick Honohan, the independent governor of the Central Bank of Ireland.

“It’s not cheap funding, but it’s cheaper, and it buys the government time to get its finances on track,’’ he said.

The senior International Monetary Fund negotiator, Ajai Chopra, insisted that the agreement’s redeployment of Irish pension funds was the most cost-efficient course to take.

Chopra said Ireland now was well positioned to reassure investors and eventually resume normal borrowing once interest rates being demanded on open markets fall.

“This is a very good deal for Ireland in current circumstances,’’ said Chopra, who arrived in Dublin 12 days ago to oversee negotiation of a bailout deal that leaders of all 27 EU nations approved Sunday at an emergency Brussels meeting