Europe's finance ministers, meeting in Brussels yesterday evening, said they will step up efforts to provide a bailout package for Ireland as fears grow it will follow Greece into financial collapse. But the Eurozone chiefs stopped short of demanding Ireland accepts Assistance after the Irish PM, Brian Cowen, said he had no plans to seek a handout from the European Central Bank. Why do EU ministers believe the once-prosperous nation must be bailed out – and why is Ireland so reluctant to take the money? WHAT HAPPENED TO THE CELTIC TIGER?Once celebrated as a model economic success story, Ireland suffered a particularly catastrophic collapse of its housing market in 2008, with its low interest rates exacerbating the situation. Since that time, house prices have fallen by between 50 and 60 per cent and many of the country's banks have had to be part-nationalised. Unemployment has risen and the country may be heading for a double-dip recession. WHY A BAILOUT NOW?The Irish government entered into an open-ended commitment two years ago to underwrite the failing financial institutions. The cost of this has now risen to €45bn, almost one half of Ireland's GDP, and the government simply cannot raise enough tax to cover it. This year's budget deficit will be a whopping 32 per cent of GDP. WHERE WOULD THE MONEY COME FROM?Ireland is under pressure from the European Central Bank (ECB) to dip into the European Financial Stability Facility (EFSF), a €750bn fund set up after the financial collapse in Greece. The ECB fears that if Ireland can't meet its debts on the bond markets, its collapse could drag down a larger economy such as Spain or Italy. The ECB has already pumped €90bn into Ireland's financial institutions. WHY WON'T IRELAND TAKE THE MONEY? WHO ELSE HAS AN OPINION?Portugal has urged Ireland to take the cash. "I want to believe they will decide to do what is most appropriate together for Ireland and the euro," said finance minister Teixeira dos Santos. He is not entirely disinterested: Ireland's refusal is causing volatility in the bond markets on which Portugal and other nations depend to fund their debts. Some financial experts are already speculating that if Ireland accepts a bailout, Portugal could be next. WHAT ABOUT THE EUROZONE FINANCE MINISTERS?Continental Europe's 16 most powerful government money men met yesterday evening in Brussels. They had been expected to hand Ireland an ultimatum, revealing a bailout package. Instead, they agreed to work on such a package – essentially telling Ireland: "The money's here when you want it." They also voiced confidence in Ireland, praising its recent budget cuts. However, the meeting continues today. Filed under: Ireland, Economic crisis, Financial crisis, Euro, banks, briefingIrish crisis:
why the Celtic Tiger won’t roll over
Briefing: Ireland is holding out against a bailout – but for how long?
Ireland is reluctant to dip into the EFSF or approach the IMF for help because any such relief would come at a heavy price: the government would lose control of its own fiscal arrangements and would probably be forced to raise taxes, including its 12.5 per cent corporation tax. One of the lowest corporate tax rates in the world, it has attracted Google and the like to Ireland. There is also the matter of pride: Ireland's sovereignty was hard-won from its larger neighbour and the Irish are fiercely independent.
Read more: http://www.thefirstpost.co.uk/71614,news-comment,news-politics,briefing-irish-crisis-why-the-celtic-tiger-wont-roll-over?DCMP=NLC-daily#ixzz15YvCzOMW
Wednesday, 17 November 2010
LAST UPDATED 4:37 PM, NOVEMBER 17, 2010
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