DUBLIN — Despite a week of firm denials, Ireland is now in negotiations with the European Union about a joint European Central Bank (ECB) and International Monetary Fund (IMF) aid package worth as much as $100 billion for its stricken economy.
IMF and ECB officials led by Ajai Chopra arrived in Dublin today to meet with the government and are pouring over the nation’s account books. Chopra is deputy director of the IMF’s European operations.
Minister for Finance Brian Lenihan said the Irish government could accept an aid package for the banks, after preliminary talks in Dublin with officials.
Others, however, have gone further. Speaking on Irish radio this morning, Patrick Honahan, the governor of the country’s own central bank, said he expects the Irish government to accept a “very substantial” loan.
“A loan will be made available and drawn down, as necessary,” he said.
“It will be a large loan because the purpose of the amount to be advanced or to be made available to be borrowed is to show Ireland has sufficient firepower to deal with any concerns of the market. We’re talking about a very substantial loan, for sure,” he told national broadcaster RTÉ.
Irish Prime Minister Brian Cowen, who has for a week been denying Ireland is negotiating for outside help, was last night still denying that negotiations were ongoing. Today the government dismissed critics who claimed the bailout amounts to a surrender of Ireland’s hard-won sovereign independence.
“There is no question of loss of sovereignty for Ireland,” said Cowen. “It will be the sovereign decision of the Irish government on behalf of the Irish people that will decide what shape any package would be where we can decide that’s in our best interests,” he said.
Opposition politicians welcomed Dr. Honahan’s words but continued to slam the government.
Enda Kenny, who leads the main opposition party Fine Gael, said government policy had been a “catastrophic failure.”
Kenny later demanded the government leave office: “You should resign. You should go to the country, they will go back to Europe, and we’ll buy time and credibility and belief and sort this out,” he said.
Labour party leader Eamon Gilmore said to Cowen there was no point in pretending that today’s discussions were “fact finding missions by Ph.D. students” and the IMF “were not coming to do their Christmas shopping.”
Loan or bailout. What’s the difference?
Speaking to the Monitor, Labour party lawmaker Joan Burton, the party’s spokesperson on finance, said the government’s denial that the loan negotiations amounted to a bailout was a mater of semantics.
“It very much is a bailout,” she says. “The government, judging by their ashen faces, feel quite humiliated and disgraced by it.”
Burton placed the blame squarely at the feet of the governing Fianna Fáil and Green party coalition.
“I don’t think we should have ever got to this place,” she says. “We shouldn’t have guaranteed the banks or started Nama [a state-run ‘bad bank’ that purchased failing assets from commercial lenders in an attempt to stem losses].
“The final nail in the coffin was the [issuing of] €31 billion in promissory notes for Anglo and Irish Nationwide,” she says.
Anglo-Irish bank is widely blamed for precipitating the crisis by engaging in risky lending in to property developers. It was nationalized in January 2009 after being revealed to be on the brink of collapse and has received $47 billion in taxpayers’ money since then.
Other banks, Irish Nationwide and Allied Irish Banks were also later taken into state ownership and Bank of Ireland is now 36 percent owned by the state.
Battle over Ireland’s corporate tax
Many are concerned that Ireland’s 12.5 percent rate of corporate tax, a key plank in attracting foreign investment, will be a target for the EU. Ireland’s tax rate is the third lowest in Europe after Bulgaria and Cyprus.
The rumblings have already started in Brussels: Ministers from France, Italy, and Austria spoke about the tax rate Thursday. Austria’s finance minister Josef Proll took a particularly strong stance, saying the EU must demand it rises as a condition of any aid.
An Irish EU spokesperson told the Monitor this afternoon that any discussion that any discussion of conditions attached to a bailout would be “hypothetical at this point.”
EU sources told journalists in an off-the-record briefing today that the bailout was now just a formality and that negotiations on such matters are started long before anything is made public.
Impact of Ireland’s crisis
The state of Ireland’s national finances has been at the centre of press speculation for over a week. It’s not just the macroeconomy that is suffering, though. Ireland’s decline has had tangible consequences on Main Street.
Unemployment is up, wages are down, and emigration has returned. A budget due December is expected to raise taxes significantly and make deep cuts to public services.
For many it feels like two decades of rising living standards have come undone in just three short years. According to official statistics, unemployment has hit 13.7 percent 27,700 people left the country in the first four months of this year, more than any time since 1989. An estimated 5,000 Irish people leave every month, an increase of 81 percent on figures from 2009.
Economist Morgan Kelly struck terror in to the heart of the nation when he wrote that worse was to come.
“If you thought the bank bailout was bad, wait until the mortgage defaults hit home,” he wrote in the Irish Times.
Michael Culloty, a spokesperson for Irish charity, the Money Advice and Budgeting Service (Mabs), which provides independent advice to people with financial problems, says that people are seeking advice but that widespread foreclosures have not yet begun.
“We’re currently experiencing an increase in the volume of people we see,” he says. “People are getting into difficulty with consumer debt in particular.”
Mabs’ clients include people of all socioeconomic classes, from right across Irish society. “One in three people coming to us has a mortgage,” he says.
A report published Wednesday by the government-appointed Expert Group on Mortgage Arrears and Personal Debt said that one in 10 mortgage holders was in arrears in making payments.
The report dashed any hopes of a bailout for families, however. While the “expert group” is recommending a major overhaul of Ireland’s punitive bankruptcy laws and the deferment of interest payments on distressed mortgages, it did not recommend banks institute a formal debt forgiveness scheme.