DUBLIN: Ireland has this week officially requested a financial rescue package.
Although details have yet to be finalised, approximately €80 billion is to be made available – equivalent to approximately half of Ireland’s GDP.
The funding will come through the IMF and the EU, but will be supplemented by bilateral loans from the UK and Sweden.
The EU component of the fund will be financed through the European Financial Stabilisation Mechanism (EFSM), which includes all EU members rather than just those in the Eurozone.
With UK contributions to the EFSM and the IMF, as well as the additional bilateral loan (thought to be approximately £7 billion), it is likely the UK will be the biggest single contributor to the package.
The Irish package differs from the Greek one in that loans are likely to be channelled directly to troubled banks in need of capital to withstand losses on bad loans.
Ireland would then only use the fund if the banking sector required additional capital, so conceivably may not need to use all of the funding available.
Should sovereign bond markets be sufficiently reassured, Ireland’s cost of borrowing could fall enough to allow it to continue funding itself through the open bond markets.
It is hoped that the financial support should also help reduce the risk of contagion from Ireland to other economies at risk such as Portugal and Spain.
However, although stability has been provided to Ireland’s funding requirements, the underlying weakness in some of the ‘peripheral’ Eurozone economies remains.
Sources: The Financial Times, The Royal Bank of Scotland
