EU ministers approve Ireland rescue package

Andre Stahl, Fiona Smith, Mike Swanson

Dublin/Brussels (dpa) – European Union finance ministers agreed Sunday on an 85 billion euros (112 billion dollars) rescue package to help Ireland overcome its debt crisis.

An urgently called meeting in Brussels also approved proposals to set up a permanent mechanism from 2013 to help other eurozone countries that get into financial difficulties.

EU economy commissioner Olli Rehn said the decisions taken in Brussels were an important step to counter instability on financial markets.

The ministers had wanted a deal in place before the markets open on Monday in order to reduce uncertainty and prevent Ireland’s debt crisis from spreading to other eurozone countries, particularly Portugal and Spain.

Ireland was forced to seek international assistance after its banks ran up huge debts that threatened to derail the government’s attempts to borrow on capital markets, posing a threat to the stability of the euro

Welcoming the deal in Dublin, Irish Prime Minister Brian Cowen said the programme was “essential for Ireland” and was in the best interests of the Irish economy and that of the European Union.

The three-year programme will mean that the Irish state will receive 50 billion euros to meet its budgetary requirements, he said.

As part of the deal, Irish banks will be recapitalized immediately using 10 billion euros of the fund and 25 billion will be used for contingency funding for the banks.

An average interest rate of 5.8 per cent will be charged.

The EU is contributing 45 billion dollars and the International Monetary Fund (IMF) 22.5 billion dollars. Ireland will contribute 17.5 billion euros to the fund for the banks from its cash reserves and National Pension Reserve Fund.

A sombre Cowen said people should understand that the loans were necessary to fund Ireland’s budgetary requirements over the coming years.

He said this was money the country would otherwise have got from the markets, but it would have been at higher prices.

Cowen repeated that the four-year plan stood but the extended 2015 target for deficit reduction “simply allowed for some scope if growth did not reach targets.”

He said that it was “reasonable in the context of such large loans from other countries” that 17.5 billion of the money would come from Ireland’s own resources and that this was a means of reducing the total amount of debt involved.

He said that crucially for Irish jobs the agreed programme does not involve any change to our corporation tax rate of 12.5 per cent.

In addition, he said, Ireland had obtained “more room for manoeuvre” by agreeing with the European Commission that the timeframe for reducing the deficit below 3 per cent of GDP can be extended to 2015 if the four-year adjustment of 15 billion proves insufficient.

“This programme, he said, was “absolutely essential” for the country.

Rehn said the turbulence on financial markets had in part been triggered by the European debate on private sector involvement when countries are facing bankruptcy.

He said the permanent mechanism intended to come into place in 2013 would not automatically draw in private creditors, but would follow the practices used by the IMF.