Ireland finally gets €85bn EU bailout

European leaders approved an €85bn, or US$112.53bn, aid package for the debt-plagued Ireland besides unveiling a permanent system to resolve the region's fiscal problems. The agreement was announced on Sunday at an European Union (EU) finance ministers’ meeting in Brussels. The financial package for Ireland includes €10bn for immediate recapitalization measures, €25bn on a contingency basis for banking system supports and €50bn covering budget-financing needs. "This program is absolutely essential for the country," Irish Prime Minister Brian Cowen said at a press conference in Dublin. "We have carefully considered all available policy options. It’s the best available deal for Ireland." Cowen added that the bailout doesn’t involve any change in Ireland’s ultra-low corporate tax rate of 12.5% and that repayments will be at a 5.8% interest rate. The funding will be available to Ireland at a cheaper interest rate than what is available on the international markets where its borrowing costs have soared to about 9%, he said.



"It is a forceful response to vulnerabilities in the banking system imposing a heavy cost on the budget and, in turn, hurting the prospects for growth that Ireland needs for an enduring solution to the crisis," Olli Rehn, EU Commissioner, and Dominique Strauss-Kahn, Managing Director of the IMF said. "Swift and sustained implementation of this program will create a smaller banking sector that is robust and well capitalized, and able to serve the needs of Ireland’s economy," they added.

Rehn said the final interest rate would only be decided next week but put the likely average at about 6%. The loans will run for an average of 7.5 years, Ireland said, and the EU quietly agreed to extend the maturities on Greece's three-year rescue package to the same date. In a key concession, Ireland was given an extra year, until 2015, to bring its budget deficit down to the EU limit of 3% of GDP, based on a more cautious annual GDP growth estimate than the government's 2.75%.

The 27 EU finance ministers also approved the broad outlines of a permanent crisis-resolution mechanism, to be called the European Stability Mechanism (ESM), based on a joint proposal by Germany and France. Crucially, private bondholders could be made to share the burden of restructuring of a euro zone country's sovereign debt bought after 2013, subject to a case-by-case evaluation, Rehn said. "It is a good decision, and it makes it clear to our taxpayers that we have kept our word," said Finance Minister Wolfgang Schaeuble of Germany, Europe's biggest economy.

ECB President Jean-Claude Trichet said that the important thing was that the IMF's doctrine would apply, the EU would not get involved in debt restructuring itself and bondholders would not be affected retroactively.