The European Central Bank expressed concerns that Irish bail out would affect Ireland’s ability to provide further funding to Eurozone members. The ECB is of the view that Ireland lacks quality collateral for bail out loans in case Ireland fails to pay back those loans.
On Friday, credit rating agency Moody’s cut sharply the Republic’s debt rating reducing it by five notches. Last week, the International Monetary Fund (IMF) approved a three-year loan of 22.5bn euros for the Republic. The funds form the first part of the IMF’s contribution to the EU and IMF rescue package. The Irish government has passed a series of spending cuts and tax rises totalling 15bn euros as a condition of the bailout.
Article first published as Irish People Protest against Austerity Cuts on Technorati.
Irish Congress of Trade Unions (ICTU) has called for protests against what he called as harshest budget ever since the state was established. Irish Police are expecting at least 50,000 people may participate in the protests. BBC News has reported that thousands of protesters are already gathering on Dublin streets.
The protests come a day after a humiliating defeat for the ruling coalition in a by-poll. The majority for the ruling coalition has been reduced to just two from six seats after the by-election on Friday, November 26. As a result, the Irish Prime Minister is facing pressures to resign as he lost mandate to take any important decisions on Ireland’s future.
The proposed bailout package of 85 billion euros ($114 billion) is coming with costly austerity measures. The government has already delivered a set of austerity cuts for coming four years that include 5% reduction in minimum wages, pension freeze and public sector job cuts of more than 25,000.
Most depressingly, the media reports suggest that Ireland might be charged with 6.7 percent interest on bailout loans to prop up crisis hit Irish banks. This is well above the interest rate 5.2 percent charged to Greece bailout. This suggests that even more interest rate may be charged for other countries like Portugal and Spain that may claim for bailout in future. There is only 6
Article first published as Bailout Pushes Ireland into Politico-Economic Instability on Blogcritics.
Ireland formally placed request for aid from the EU and IMF. Ireland people are quite against to this. They are not able to believe that their country needed bailout. They are angry with the U-turn taken by the government, which said initially that Ireland could solve itself its crisis. Earlier, Ireland prime minister Brian Cowen and finance minister Brian Lenihan angrily rebutted the claims that Ireland was on the verge of asking for aid from the EU and IMF even as the preliminary talks for aid began with the European authorities by then.
It is said that Irish people were confident about their capacity to overcome any obstacles that came in their path of development. They had a history of fighting for independence from the England’s colonial rule. They believed that Ireland once saved the European Monetary Union by joining it while it was recording more than 30% of GDP growth rate. They believed in the same vein their country had a capacity to overcome the latest crisis. It seems they could not bear a fact that their country is in a position to beg for aid from other European countries.
Political opportunists always will be there to cash in such situations. They stepped in to cash in the people’s anger. Green party, the junior partner of the ruling Fianna Fail party announced on November 22 that they wanted the parliament dissolved for an early election in January next year. The ruling coalition is on political tight rope walk with just three seats majority in the parliament, where Green party holds six seats. Without GP’s support, the ruling coalition will collapse. So, Green party holds the capacity to force the country to seek early election. But, GP’s announcement to seek an early election might be a mere political exercise to extract more benefits for it.
Irish bailout, still not known how much is planned, failed to alley market worries as debt costs for Ireland, Spain and Portugal continued at high levels. However, most of the European share indices along with that of the US were up, with positive news from the US data.
Jobless claims in the US came down slightly comparing with the previous week. Yesterday, the US revised up its third quarter growth rate from 2% to 2.5%.
The yield on Irish government’s 10 year bond was 8.92%, a record level reached before the bailout talks began. Though Irish government is not going for debt sale as it is fully funded up to the first half of next year with EDB funding, it is still a matter to worry. Because, it denotes that the markets are losing confidence on Ireland’s capacity of repayment of its debt.
The yield on 10 year Portuguese bond was 7.8%, which means the bond spread relative to the German bund was 4.8%. The Spanish-German 10 year bond spread recorded at 2.6% a life time high for Spain.
As expected, Ireland has unveiled tough austerity measures for next four years. These measures are part of convincing EU and IMF that it is committed to deliver tough measures.
Ireland’s four year plan aims to save 15 billion euros ($20 billion). BBC and Reuters have said the joint bailout package from EU and IMF is expected to be worth 85 billion Euros ($114 billion).
The austerity plan also aim to cut 24,750 public sector jobs, to save 2.8 billion euros through welfare spending cuts, to raise additional 1.9 billion euros by increasing income tax. Minimum wage for workers will be reduced and new property tax will be launched. Value Added Tax will be raised to 23% in 2013 from 21% and to 24% in 2014.
Bombay Stock Exchange (BSE) has recorded a 1.9% rise on Monday, November 22 indicating that the investors are not worried about the political deadlock in India over 2G spectrum-scandal. Rather they have concentrated on the Ireland’s bailout programme, which feared will spread debt crisis to other highly indebted countries such as Portugal and Spain.
Broader National Stock Exchange (NSE – Nifty) has recorded 2.03% rise, once again crossing 6000 mark. On last Friday, the Sensex (BSE) was down by 1.7% with fears that the Prime Minister will resign on Supreme Court’s reprimand over his indecisiveness for 16 months and his denial for the prosecution of the former Telecom minister. The resignation of a market oriented Prime Minister will be a saddening news for markets.
The Comptroller Auditor General has implicated the Telecom minister in allocating 2G spectrum at cheap costs to a few chosen private companies on first-cum-first basis instead of going for auction. The CAG alleged the minister has caused the government to lose nearly $39 billion (Rs. 1.76 lakh crore) in revenue. The opposition parties are halting parliament proceedings for two weeks over the spectrum scandal demanding constitution of JPC (Joint Parliamentary Committee) to probe into the scandal.
Irish rescue programme discussed on November 21 has helped raise Euro value and share markets. Though full details are yet to be discussed in coming days, the mere announcement that the Ireland has been offered bailout package has satisfied the markets, it seems.
Ireland government initially denied that it would need bailout but finally admitted it would need one on Thursday, November 18. Reuters report has suggested the bailout amount would be between 80 and 90 billion euros. This is less than the bailout sanctioned to Greece, 110 billion euros. Yesterday, Sunday Telegraph has speculated the bailout amount would be 120 billion euros. But, Ireland finance minister has said the amount might not cross two-digit figure. Ireland bailout will be disbursed over 3 years.
Ireland President has requested solidarity from his people. Irish people will be facing income tax raise as a result of conditions that will follow the aid package.