Brussels, UK readying 'Oliver Cromwell package' for Ireland
18.11.10 @ 19:30
BRUSSELS - Senior Irish politicians and officials conceded on Thursday (18 November) that Dublin is in talks over a massive EU-IMF rescue that will likely also involve some UK involvement, a bail-out one European official darkly dubbed the "Oliver Cromwell Package."
As negotiators from the EU-ECB-IMF troika arrived in Dublin on Thursday to oversee the crafting of Ireland's 2011 and four-year austerity budgets, Irish Central Bank governor Patrick Honohan said that he expects the government will take out a "very substantial loan" from the EU and IMF to fix its finances.
"It's my expectation that [a multi-billion-euro loan] is what is definitely likely to happen. That's why the large technical teams are sitting down discussing these matters," he told Ireland's public broadcaster, RTE.
"I think this is the way forward. Market conditions have not allowed us to go ahead without seeking the support of our international collaborators."
"It will be a large loan because the purpose of the amount to be advanced, or to be made available, is to show Ireland has sufficient firepower to deal with any concerns of the market," he added. "We're talking about a substantial loan."
Subsequently on Thursday, finance minister Brian Lenihan told the Dail, the Irish parliament, that the government will apply for a bail-out once talks with the troika team have concluded.
The Wall Street Journal is reporting that the bail-out could reach up to €100 billion, although Mr Lenihan said that any sums may not necessarily be immediately paid out but could be part of a facility that would be made available "but not drawn down," similar to how a €110 billion bail-out operates for Greece.
Bail-out details trickling out
Meanwhile, more details about the outlines of a package are trickling out, along with the tasks being undertaken by the troika inspectors who arrived in Dublin on Thursday.
According to a commission source, who jokingly called a potential bail-out the "Oliver Cromwell Package," after the Lord Protector of England who lead the reconquest of Ireland in 1649, two thirds of the monies contained in any eventual package would come from the EU and a third from the IMF.
"The [troika] team right now is there to make an assessment of how much money will be needed for the banks," said the official. "At a later stage comes the conditionality, and the 'last mile' is always taken at a political level, not by the experts. It's the member states that will have to decide."
The stiff conditions attached to any rescue will be based around details of the four-year budget plan.
"This is a really massive amount of work that needs to be done," continued the official. "A one-year budget is already an enormous amount of work, but we're talking about a four-year budget outline that is dealing with a two-digit deficit and that needs to be sufficiently detailed to convince markets."
The inspectors will also be parsing budget projections to ensure that any unwarranted optimism about economic growth is excised and prevent a fudging of the numbers.
However, despite the fine tooth-comb the inspectors are taking to Dublin's spreadsheets, according to the official, reports suggesting that Ireland's 2011 budget and four-year budget "are being written by the commission and the IMF are a bit exaggerated."
Hiking taxes on low-income earners
A raising of the corporation tax however appears to be moving to the background, allowing Dublin to claim that it has won some concessions from the troika.
Irish government sources close to the discussions on what sort of conditionality could be imposed on the provision of funds say that there are in any case many other ways the state can broaden its tax base, notably an increase in property taxes and water rates. The government has already signalled that such moves are likely and have been suggested by a number of economic think-tanks.
In particular, there is also considerable room to manoeuvre in hiking taxes on low-income earners at the bottom of the tax pyramid. Ireland has a very high threshold before individuals begin to pay income tax, with almost half of all income earners paying nothing at all.
'Britain ready to support Ireland'
The UK is also looking to participate in the bail-out, although whether this will be via a eurozone mechanism or direct bilateral loans remains unclear.
French finance minister Christine Lagarde told France Inter radio on Thursday said that the UK may do son on a bilateral basis.
On Wednesday, UK chancellor George Osborne met with his Irish counterpart and later said: "Britain stands ready to support Ireland."
"I won't speculate on what kind of assistance we might provide. There are options, and we are looking at all of those."
"But remember, the Irish have not requested assistance and these are precautionary discussions," he added.
The UK is more exposed in Ireland than any other EU state. A commission official told this website: "If Ireland does undergo a financial collapse, there is real exposure in the UK beyond the figures, assets - there would be a chain of events that would have serious implications."
According to an analysis of data from the IMF and the Bank for International Settlements by UBS, UK banks' claims in the country amount to $195 billion, equalling more than half of all Europe's exposure in Ireland. German and French combined claims amount to just €50 billion.
With a number of prime UK banks nationalised, any fall-out from Ireland that leads to uncertainty in British financial institutions could ultimately require a cash injection from Her Majesty's Treasury - essentially the same situation Ireland is in at the moment, at a time when London has announced its own swingeing cuts to public services.
A UBS analyst, Geoffrey Yu, recently wrote of the fears stalking Westminster: "The UK's financial supervision authorities will ... probably need to run a new round of stress tests to simulate the cost of serious problems in Ireland and associated contagion. It is probable that these costs will dwarf the cost of a UK financial contribution to a bail-out scheme by far."
Already some Tory eurosceptics are demanding that the UK remain aloof from what they see as purely a eurozone crisis.
While the Irish foreign office is denying that any co-ordination between London and Dublin is occurring, and the UK Treasury "will not comment any private discussions that may or may not be ongoing between governments," other sources report that a "very tightly restricted" conversation is indeed taking place between the two capitals over the issue.
200-year Irish struggle
Across the Irish Sea, citizens are awakening to the scale of the potential loss of sovereignty. A major demonstration in Dublin against the EU-ECB-IMF troika and the government has been called by trade unions and left-wing groups for Saturday 27 November, and early reports from organisers suggests the march could be the biggest yet seen since the advent of the crisis.
Even the legendarily sober Irish Times on Thursday published a blistering editorial pillorying the government.
"Having obtained our political independence from Britain to be the masters of our own affairs, we have now surrendered our sovereignty to the European Commission, the European Central Bank, and the International Monetary Fund," the editors of the paper wrote.
"Irish history makes the loss of that sense of choice all the more shameful," the editorial continued. "The desire to be a sovereign people runs like a seam through all the struggles of the last 200 years. 'Self-determination' is a phrase that echoes from the United Irishmen to the Belfast Agreement."
"To drag this state down from those heights and make it again subject to the decisions of others is an achievement that will not soon be forgiven."