Ireland Steps Back From Brink as Bailout Expected

Ireland’s situation, which had grown more tenuous as fears spread of default, eased on Thursday. While on Wednesday Ireland had still insisted it did not need outside assistance, the story changed the next day as Patrick Honohan, Ireland’s central bank governor, said he expected loans of “tens of billions” of euros.

Honohan spoke prior to a meeting with the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). According to a Reuters report, he told state broadcaster RTE that “[t]he intention is and the expectation is, on their part and personally on my part, that negotiations or discussions will be effective and a loan will be made available and drawn down as necessary.”

Although on Wednesday EU ministers had agreed that the EU, the ECB and the IMF would begin talks on a bailout, they did say Ireland would have to decide for itself to accept it. In a Reuters report, Brian Cowen, Ireland’s prime minister, had indicated that the country itself was not in need of assistance, but the banks might have to be rescued.

European stock and bond markets and the euro had dropped for 10 straight days as the situation worsened, but seemed to draw a breath on Thursday as word spread of the pending bailout. In the U.S., stock index futures edged higher as well.

Jean-Claude Juncker, Eurogroup chairman, had promised that the eurozone would be defended. Sixteen nations make up the currency zone. After talks on Tuesday, Juncker said at a news conference, "The discussions that will take place between Ireland and the Commission and the ECB and the IMF will enable us to have at our disposal all the elements and instruments we need were Ireland to make a request for assistance to the EU, the IMF and the Eurogroup."

They didn’t plan on waiting long to put the strategy into effect, either. Sources said that even though the plan was to focus on the Irish banks, once the mission was complete a rescue would be triggered for more than the banking sector. France’s Economy Minister Christine Lagarde said, “If you ask me whether that is a question of six months or of days, I would say we are closer to a question of days rather than six months.” That has apparently proved to be true.

Now that rescue is in the air, France has indicated that as a condition of its bailout, Ireland might have to raise its corporate tax rate. Dublin had been fighting against just such a measure. Lagarde said in a Reuters report that that rate, at only 12.5%, is abnormally low by European standards. She told France-Inter Radio that ". . . we will have to see how these [corporate] rates can be changed without weighing down the Irish economy and driving away investors.”

Bloomberg reported Wednesday that Ireland was preparing to open its banks’ books on Thursday to the EU and IMF. The inspection had been intended to decide whether Ireland could continue to work on its own to correct its problems or whether funds would be needed from the European Financial Stability Facility (EFSF). The EFSF holds $1 trillion (750 billion euros) against just such an eventuality.

Britainhas said that it will support a rescue for Ireland. Previously it had kept itself out of the eurozone in an effort to keep Ireland’s troubles from spreading to the rest of the U.K. It also had not contributed to the rescue package for Greece, but George Osborne, the chancellor of the exchequer, was quoted as saying the country “stands ready to support Ireland.”