Although Ireland formally accepted the need for a bailout, requesting help from the European Union (EU) and International Monetary Fund (IMF) on Sunday, the world markets failed to be impressed on Monday.
In the U.S., stock futures dropped in early trading—particularly those of Allied Irish Banks Plc (AIB.N) and Bank of Ireland (IRE.N)—and the Dow and S&P ended the day down slightly. European markets fell across the board, and the two Irish banks saw losses of 16.1% (Bank of Ireland) and 1.6% (Allied Irish). The euro lost 0.4% against the dollar, amid worries of contagion and fears that Portugal would be the next country in need of rescue, according to Reuters.
Moody’s said that there might be a “multi-notch downgrade” in Ireland’s credit rating as a result of the bailout, according to The New York Times. The country’s Aa2 rating was put on negative outlook last month.
When the original announcement was made, Irish Prime Minister Brian Cowen said, “The European authorities have agreed to our request. I expect that agreement to be finalized shortly, within the next few weeks.” The request was made under the European Financial Stability Facility (EFSF).
While the size of the package is not yet decided, it is expected to be between 80-90 billion euros, a smaller amount than the 110-billion-euro package Greecereceived in April. Britain will contribute about 7 billion pounds, even though it is not part of the euro zone.
Olli Rehn, economic and monetary affairs commissioner, said that EU, European Central Bank (ECB) and IMF experts would develop a three-year package of loans by the end of November. “Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” he said. “The program under preparation will address both the fiscal challenges of the Irish economy and the potential future capital needs of the banking sector in a decisive manner.”