Pat Dollard

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Los Angeles Times:

Reporting from London —In a humiliating about-face, Ireland’s finance minister said Sunday he would recommend that his country ask for an international bailout to stabilize its foundering banking sector and save the country from skyrocketing borrowing costs.

The exact size of the rescue package is still to be worked out, but analysts say that it could be worth as much as $100 billion in loans and guarantees from the European Union and the International Monetary Fund. The Irish government was expected to approve Finance Minister Brian Lenihan’s proposal later Sunday.

Ireland would become the second country in the EU, after Greece, to seek outside help in stabilizing its finances. Dublin has been under intense pressure from its European neighbors to apply for a bailout, which they hope will calm investors and prevent the crisis of confidence in the euro currency from spreading.

Irish officials had insisted for weeks that they had no need of assistance; despite a monumental budget deficit, the government said it had enough money to keep going well into next year.

But analysts said capitulation was all but inevitable as unconvinced investors continued to dump the euro and push up the cost of borrowing not just for Ireland but also for other vulnerable EU nations such as Portugal and Spain.

In a radio interview Sunday with Irish broadcaster RTÉ, Lenihan said that, after intensive talks with EU and IMF officials over the past few days, he had concluded a bailout was in Ireland’s best interests.

“It is important that this state continues to fund itself in a stable way,” Lenihan said, “that economic continuity is preserved, that there is no danger to the borrowing which the state requires.”

Above all, he added, the emergency aid package would help ensure “that our banking sector is stabilized.”

A number of major Irish financial institutions have collapsed in the last two years because of bad loans issued during Ireland’s real-estate boom and bust. The government has taken on many of those debts, which has boosted its budget gap to the highest of any country in Europe. Despite the state’s intervention, Allied Irish, one of the hardest-hit banks, revealed that skittish depositors had withdrawn nearly $18 billion so far this year.

To bring its runaway deficit under control, the government is expected to unveil a new austerity plan Tuesday, which would come on top of painful cuts already imposed over the last two years. But the economy has failed to rebound strongly, leading to fears that Ireland could be digging a deeper hole for itself through a vicious cycle of more cuts, low growth and increasing levels of public debt.

Details of Ireland’s rescue package will be hashed out in the coming days and, possibly, weeks. Lenihan said the deal would probably not exceed 100 billion euros, or about $137 billion.

By acting Sunday, Dublin clearly hoped to soothe investors before Monday’s opening of the markets, where the euro has taken a pounding in value over the last several weeks.

Whether a bailout will stem loss of confidence in the currency remains to be seen. Emergency loans to Greece earlier this year succeeded in calming markets only until worries over Ireland flared up; some analysts say Portugal could be forced to appeal for help soon.

The biggest fears surround major economies such as Spain and Italy, where investor flight could have global consequences.

In fiercely independent Ireland, the prospect of asking for international aid and possibly surrendering some economic sovereignty in return is deeply embarrassing for the ruling party, Fianna Fail. An early indicator of public opinion could come this week in a special parliamentary election in which the Fianna Fail candidate is currently trailing in the polls.