Bailout looms for troubled Ireland

 
Steve Dinneen
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A bailout for troubled Ireland drew closer last night as an international taskforce prepared for crunch negotiations over the country’s economic future.

Representatives from the International Monetary Fund, the European Central Bank and the European Commission – the same team that descended on Greece – will begin their work in Dublin this morning.

They will probe growing concerns that Irish bank deposits are dwindling as faith in the financial system comes close to collapse.

Irish Life & Permanent revealed yesterday corporations withdrew a staggering €600m in a matter of weeks at the end of the summer – more than 11 per cent of total deposits. This echoes a similar trend at Bank of Ireland and, along with bigger than expected losses, has led to fears banks could struggle to fund their daily operations.

Irish finance minister Brian Lenihan attempted to play down the possibility of liquidity problems, saying: “The European Central Bank stands fully behind the Irish banking system. There are no funding difficulties in the Irish banking system.”

But he admitted the banking sector needed help, adding: “What may be required may not in fact be an actual transfer of money now but demonstration of how much money can be made available if further difficulties materialise.”

The Irish Treasury is still attempting to deflect talk of a state bailout, attempting to
contain the crisis within the banking system. Irish Prime Minister Brian Cowen said: “There has been no question of the government negotiating for a bailout.”

However, sceptics argue there is little distinction following the state guarantee of the banks undertaken in 2008.

The Irish Treasury insists it is not adverse to external help, despite Ireland’s apparent reluctance to accept a handout. It yesterday issued a statement saying: “We’re not on our own. We’re part of the Eurozone. And the finance ministers of the Eurozone are determined to take whatever action is needed to safeguard financial stability throughout the area. That includes Ireland. We share our sovereignty with Europe in relation to currency.”

Austria heaped pressure on the beleaguered nation yesterday when it suggested Ireland could be made to hike its low rate of corporation tax as punishment for its financial failures.

Ireland’s 12.5 per cent rate of taxation has allowed it to compete as a major business hub. Firms including Google and Microsoft have their European domicile there and yesterday Greencore and Northern Foods announced they plan to remain in Ireland for tax purposes after their planned merger goes through. Any hike in the tax rate could hurt Ireland as it begins its slow recovery.

The Irish finance ministry said it will not bow to Austrian pressure, claiming the EU’s Lisbon Treaty protects the rate.

George Osborne agreed “It’s up to countries to decide their own tax policies”

The UK Treasury was unwilling to comment on speculation the UK may offer Ireland direct financial aid in addition to – or even in place of – the £6bn of European funds.

Osborne said: “Britain stands ready to support Ireland on the steps it needs to take to bring about that stability. I won’t speculate on what kind of assistance we might provide.

There are options, and we are looking at all of those.”

The UK last offered a direct country to country loan to Brazil in 1998.

However, last night Eurosceptic Tories had already broken ranks. Tory MP Douglas Carswell told City A.M.: “Osborne talks about national interest. The worst possible national interest would be for the British taxpayer to spend billions of pounds from an EU fund set up to deal with natural disasters in order to prop up the euro and delay Ireland’s misery.”

Markets yesterday closed slightly higher as hopes of a bailout for Ireland boosted investor confidence. The FTSE 100 jumped 10.66 points to 5,692.56.