Ireland in preliminary 'bail out' talks with EU

The Republic of Ireland is in preliminary talks with EU officials for financial support, the BBC has learned.

It is now no longer a matter of whether but when the Irish government formally approaches the European Financial Stability Fund (EFSF) for a bailout.

The provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros ($82-110bn; £51-68bn).

Irish officials have not denied they are in talks about accessing the EFSF but instead say “it makes no sense”.

The European Commission would not formally comment on the matter.

Eurozone officials told the Reuters news agency on Friday that discussions were under way, with one saying that it was “very likely” Ireland would receive financial assistance.

The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said on Saturday that it had not been asked for aid.
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image of Joe Lynam Joe Lynam BBC News

Unlike Greece last May, Ireland doesn’t need to ask the markets for money until next year. But bond traders are not convinced it can cut its deficit by enough by then and have pushed the cost of borrowing to unsustainable levels (8.3%).

Dublin had hoped that by slashing spending and raising taxes in the forthcoming budget on 7 December, it would show resolve and in doing so drive down the cost of borrowing on the bond markets. That hope is now dashed.

Now that talks have begun with Eurogroup officials, Ireland has the embarrassment of pressing ahead with day-to-day management of a country still officially Europe’s third richest - knowing that it will have to join an exclusive but not illustrious group of nations needing to go cap in hand to their fellow eurozone countries for a loan.

“So far I have not had a request, and I think Ireland can manage well,” he told reporters at the Apec summit in Yokohama.

The IMF and EU had to step in with a 110bn-euro bailout package for Greece in May, sparking a Europe-wide sovereign debt crisis.

BBC business correspondent Joe Lynam says any bailout would not be agreed this weekend, but might though come as early as next month.

A meeting of the Eurogroup, composed of the EU member states whose currency is the euro, is scheduled for 6 December.

The Economic and Financial Affairs Council (Ecofin) - comprising the economics and finance ministers of eurozone countries - will gather the following day.

Lastly, the full European Council is to meet on 16 and 17 December.

Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%.

Our correspondent says the Irish government has also all but nationalised the country’s banking system, which had lent recklessly at an estimated cost of 40bn to 50bn euros.
A homeless man sits on O’Connell Bridge in the centre of Dublin Ireland has faced one of the deepest recessions in the eurozone

The country has promised the EU it will bring its underlying deficit down from 12% of economic output to 3% by 2014. Its current deficit is an unprecedented 32% of gross domestic product, if the one-off cost of bad debts in the Irish banking system is included.

The Irish government, which has a flimsy majority in parliament, is set to publish another draconian budget on 7 December, which will make spending cuts or tax rises totalling 6bn euros, and aims to bring the deficit down to between 9.5-9.75% next year, he adds.

That parliamentary majority is likely to be cut to only two on 25 November, when a by-election will be held that the governing Fianna Fail party is likely to lose.

The government had left the Donegal South West seat empty for 17 months but the Republic’s second-highest court recently ruled that the delay was unreasonable. Three other by-elections are also required.

Investors fear the budget cuts are likely to worsen the country’s already deep recession, leading to further losses to the government via falling tax revenues and higher benefit payments.

Already 'ere:

(In the IMF thread).