Ireland edges towards EU bank bailout
Funding for banks could be in 'tens of billions'
Irish Finance Minister Brian Lenihan told fellow lawmakers Thursday he would welcome "substantial" funds from the European Union to stand behind the country's banks while continuing to insist that the government might not need any emergency aid at all.
Lenihan made his comments as an army of officials from the European Commission, European Central Bank and International Monetary Fund descended on Dublin to explore the scope and terms of a bailout.
Those behind-closed-doors talks could last for days.
As Ireland edged towards accepting funds "in the tens of billions" of euros, according to Irish central bank Governor Patrick Honohan, the head of the ECB hinted that Europe's debt-laden economies can't keep relying on bailouts endlessly.
In a speech in Frankfurt, ECB president Jean-Claude Trichet said that steps first taken during the global credit crisis in 2008 can't be allowed to "evolve into a dependency."
"It will be a large loan because the purpose of the amount to be advanced, or to be made available, is to show Ireland has sufficient firepower to deal with any concerns of the market," said Honohan.
"We're talking about a substantial loan."
The Irish government appeared determined to negotiate the best deal it can.
Deputy prime minister Mary Coughlan declared that Ireland's 12.5 per cent corporate tax rate — a key magnet for foreign investment that Germany, France and other EU heavyweights want to see raised — "is non-negotiable."
| Countries most exposed to Irish bank loans ($US) | |||
| 1. Britain | $222 billion | ||
| 2. Germany | $206 billion | ||
| 3. United States | $114 billion | ||
| (Source: Bank for International Settlements) | |||
But bond traders want action soon.
"It is quite clear that the banking sector is under huge stress and money is flowing out of the banks and this needs to be addressed," chief economist Alan McQuaid of Bloxham Stockbrokers in Dublin told Bloomberg.
"We need to take the money and get on with it."
In recent months, loans from the European Central Bank to Irish banks have surged, and recently reached an apparent breaking point whereby the Irish banks could no longer provide sufficient collateral.
The Irish Central Bank, controversially, has been filling the cash void by providing its own ECB-backed loans to the Dublin banks that have taken total ECB exposure in Ireland above 130 billion euros, a quarter of its euro zone loan book.
Ireland's struggles, as well as those of other debt-burdened countries including Greece, Portugal and Spain, are in contrast with Germany's strong economic growth.
The ECB's dilemma is to balance rescuing struggling economies while not pushing Europe's largest economy towards high inflation.
With files from The Associated Press