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European Union finance ministers unanimously approved on Sunday an 85 billion euro, or $110 billion, bailout package for Ireland, saying they agreed with the European Commission and the European Central Bank that the move was “warranted to safeguard financial stability in the euro area and the EU as a whole. The Irish government had requested the package on Nov. 22 and approved a three year joint European Union-International Monetary Fund program on Nov. 28.
The 85 billion euro package includes an immediate 10 billion euros for recapitalization of Irish banks, €25 billion “on a contingency basis for banking system supports,” and the remaining 50 billion in euros to cover “budget financing needs.”
Discussion was also underway, according to a Reuters report, for a bailout for Portugal, which has denied it needs the help of the International Monetary Fund (IMF) after passing a stringent austerity budget on Friday.
Even though earlier German newspaper reports of the European Union (EU) pressuring Portugal to accept a bailout were dismissed as “absolutely false” by European Union Commission (EUC) President Jose Manuel Barroso, German government sources on Sunday said such an action was still under discussion. Jose Socrates, Portugal’s prime minister, told reporters in Lisbon that “Portugal has all the conditions to finance itself in the markets as it has done. I have good expectations that approval of the budget will reinforce confidence in the markets.”
Concern of contagion has riled the bond markets, sending the bond yields of Ireland, Portugal, Spain, and Greece skyrocketing.
The need for a permanent solution is considered so urgent that the heads of the EU, the European Central Bank (ECB), the European Council (EC) and euro zone finance ministers were on the phone Sunday, according to Reuters, talking over the details of the plan put forth by France and Germany. One major feature, according to a German government source, is that private bondholders would, on a case-by-case basis, be expected to take some of the losses in any future euro zone sovereign debt restructuring.
Talk of such losses, or “haircuts,” was a major contributing factor to Ireland’s demise; German Chancellor Angela Merkel has been outspoken in her insistence that bondholders must share in losses. She said that action would not be taken, however, till at least 2011. The plan currently under discussion would, if accepted, replace the European Financial Stability Facility (EFSF) by 2013.
All 27 EU finance ministers were expected to give the nod to the general long-term plan before markets open in Asia on Monday. It is not known how much detail will be released if the plan is approved.
It is hoped that the Irish bailout will calm fears of contagion in the euro zone. If Portugal falls next, worries are that Spain will be in for trouble because of that country’s close economic ties with Lisbon. However, Madrid is meeting milestones to meet its targets for deficit reduction, and, in what is becoming a common refrain, Prime Minister Jose Luis Rodriguez Zapatero has said that the country does not need aid.