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Ireland tries to avoid EU bailout
An Irish flag being waved in the air
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Kai Ryssdal: Let's take a detour here and go back to the economic future for just a second. We spent a good part of the spring and summer dissecting Europe's public sector finances. We had the Greek bailout and threats of same for Spain and Portugal. Once again today, European finance ministers found themselves locked in crisis talks.
It's Ireland this time. The Irish are being urged to swallow some of that pride and ask for help -- bailout help -- from the EU. But government in Dublin, which now has Europe's biggest budget deficit, is digging in its heels.
From the European Desk in London, Marketplace's Stephen Beard reminds us how we got here.
Stephen Beard: Ireland took the toughest deficit reduction measures in Europe, cutting civil servants' wages by up to 15 percent. And the government is planning another round of spending cuts and tax increases within weeks.
But more austerity will only make matters worse, says Dublin-based analyst, Dr. Alan Barnet.
Alan Barnet: That will surely have implications for employment, outward migration, wages -- all the sort of things that tend to drive down the price of houses. And if that keeps happening, well, you're going to get more foreclosures and more mortgage losses.
And bigger debts for the banks. And that's the Irish problem: when the massively inflated real estate bubble burst, some of the country's largest banks were left insolvent. To stop the whole economy collapsing, the government guaranteed all the banks' debts. But now, says economist Simon Tilford, those debts are growing.
Simon Tilford: The real story is the indebtedness of the private sector and how much of that debt will ultimately end up on the public's books.
Investors feel that Ireland must seek outside help: a European bailout. The Dublin government sees that as a national humiliation. But its refusal has triggered a big sell off in Irish government bonds and the bonds of other heavily indebted Eurozone countries like Portugal. Janet Henry is chief European economist with HSBC bank.
Janet Henry: Until there is some kind of conclusion on the Irish situation, it's unlikely that the markets are going to stabilize in terms of how they're viewing the likes of Portugal, for instance.
Tonight and tomorrow, the Irish government will be under intense pressure to accept an EU bailout. The fear is that if it refuses, a huge new wave of speculation would hit the Eurozone bond market. The survival of the Euro itself could ultimately be in jeopardy.
In London, this is Stephen Beard for Marketplace.
Interesting to listen to Irish Politicians and the Irish media deny the inevitable. That Ireland is flat broke because of poor leadership and a gombeen financial sector that rewarded the people who caused the meltdown in the first place.
The cost of the bank bailout so far has been Eu45 bn and the total estimated cost according to Central Bank head Patrick Honohan is Eu87 bn or about 50% of GDP. Total debt of Ireland’s banks is estimated at Eu567 Bn so the actual cost of the final bailout could total well over Eu 150, if you make a reasonable assumption that 25% of debt is probably never going to be paid back – that figure is Eu 141 Bn. Just for the record, that is about 1005 of GDP.
To those who think these numbers are too high – just look at Ireland’s track record of reporting bank loses over the last few years. Clearly you cannot trust the politicians or the bankers whose numbers were never a real reflection of the catastrophe. For media pundits and politicians to deny the need for urgent action and a influx of cash is just blarney – and to think that because Ireland has funds through June of 2011 means all is well is more of the short sighted thinking that got us here in the first place.
