Markets and partners relieved at Ireland rescue
Financial markets rallied slightly and European Union partners voiced relief on Monday after Ireland agreed in principle on a three-year bailout package with the EU and the IMF to salvage its shattered banks.
European shares rose 0.7 percent in early trade, the euro climbed and Irish borrowing costs fell in response to an outline rescue deal intended to stop contagion spreading to other fragile euro zone economies.
But it was unclear whether the second euro zone bailout in six months, after Greece, would be sufficient to prevent markets targeting fellow straggler Portugal.
"It is necessary to help Ireland, otherwise the whole euro zone would be in danger," Austrian Finance Minister Josef Proell said on Monday after euro zone ministers approved Dublin's request for aid in a Sunday evening telephone conference.
European and IMF officials will start thrashing out details of the loans -- expected to total 80 to 90 billion euros -- on Monday while the government puts the finishing touches to a drastic 15 billion euro ($20.5 billion) austerity plan.
Prime Minister Brian Cowen said the four-year program, to be announced on Wednesday, would involve 10 billion euros in public spending cuts and 5 billion euros in tax rises, on top of two years of tough austerity already endured.
The government is expected to cut the minimum wage, slash social welfare spending, reduce the number of public employees and include a new property tax and higher income taxes.
But in an effort to rekindle economic growth, ministers said they would preserve the ultra-low 12.5 percent corporate tax rate which is a magnet for foreign investment but an irritant to many EU partners which see it as a form of unfair competition.
The corporation tax issue has become the focus of Irish concerns about a loss of national sovereignty in a nation which fought less than a century ago to win independence from Britain.
Finance Minister Brian Lenihan said the European Union and International Monetary Fund had seen the outline of Ireland's four-year austerity plan and were unlikely to demand changes.
"I think it is unlikely that they will request changes in the plan," Lenihan told state broadcaster RTE.
Portugal, next in capital markets' firing line, rushed out a statement saying Sunday's agreement by EU finance ministers to grant Ireland the second euro zone bailout after Greece should restore investors' trust in the 16-nation single currency area.
"The fact that Ireland can have a significant aid plan alleviates concerns, reduces uncertainty and reinforces market confidence," Portuguese Finance Minister Fernando Teixeira dos Santos said.
Financial market professionals said the Irish bailout might bring short-term relief but voiced doubts about whether it would prevent Portugal being forced to seek assistance eventually.
[Source: By Carmel Crimmins and Kirsten Donovan, Reuters, Dublin and London, 22Nov10]
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