Wow, how quickly things change. Just a couple of weeks ago, the Irish insisted that they didn’t need any help with their finances, saying that they had it all under control. “Just wait till we release our budget figures in early December aye!” they said.
Then, after some pressure from other euro zone members, the Irish then said that they were willing to accept a loan package (not a bailout). They didn’t want to have to tap into the European Union (EU) – International Monetary Fund (IMF) bailout fund that was put up earlier this year, fearing that if they did, it would make financing more difficult down the road.
Over the weekend however, Irish officials finally caved in and are now looking to accept billions of euros in aid from the EU and IMF. Too bad this gives Ireland the stigma of being the first EU nation to tap into the combined 750 EUR emergency fund.
If you ask me, there’s nothing wrong with being the first. After all, they are making the right steps towards fixing their finances. Gotta think long-term baby!
Aside from wounded pride, Ireland is expected to nurse a tentative 80 billion EUR worth of financial aid over the next three years. The IMF is expected to shoulder roughly one-third of the package, while the majority will come from the 440-billion EUR European Financial Stability Facility (EFSF) set up by the euro zone governments last summer. The U.K. and Sweden will also put their chips in, although through the use of bilateral loans.
While smaller than Greece’s 110-billion EUR package, Irish officials say that the 80-billion EUR figure will be enough to help the country’s budget and banking system glitches. You see, the package comes with a blood compact (well, not really) that the country will restructure its banking industry.
Big banks like Bank of Ireland and Allied Irish Banks PLC will be forced to downsize by shucking off “nonessential assets” that don’t directly help the Irish economy. These include overseas operations, and other businesses of the same nature. Hah! And you thought “nonessential assets” mean coffee makers, the office Wii, and a copy Call of Duty: Black Ops!
Sure, Ireland’s a sellout for accepting the bailout (see what I did there?), but really, what other option do the Irish have? The longer it takes for the Irish to act, the higher the risks of debt contagion becomes.
While the rescue package for Ireland does not totally eliminate the possibility of a contagion in the future, it certainly does calm market fears. In fact, over the weekend, EUR/USD gapped up more than 30 pips on the “good news”.
But it’s not over yet. With all this debt talk, the focus has shifted back to Portugal and Spain, whose public finances are still in shambles. So don’t put all your eggs in one basket euro bulls, as this may very well be just a short-lived rally!