|Despite a positive response from the markets many people in Ireland are angry at the government [AFP]|
Stocks markets have rallied after Ireland agreed in principle to a three-year bailout from the European Union and International Monetary Fund.
The euro climbed to $1.37 on the foreign exchange market and European shares rose 0.7 per cent in early trade on Monday, while Irish borrowing costs fell in response to the deal.
The London stock market jumped 0.43 per cent, Frankfurt gained 0.52 per cent and Paris put on 0.55 per cent.
EU foreign ministers welcomed Ireland’s decision to apply for a loan, which could total up to $124bn, as they arrived for talks in Brussels.
“It’s good news as it is a sign that European solidarity also worked. It’s made clear that the euro will stabilise thanks to the help of all the EU members,” Trinidad Jimenez, Spain’s foreign minister, said.
Calls for election
However the news has sparked anger within Ireland, where many people feel “humiliated” by the prospect of a bailout.
“It’a humiliation for the Irish population and it’s a big humiliation for the Irish government as well,” Rory Challands, Al Jazeera’s correspondent in Dublin, said.
“[The government] has been saying for weeks that it didn’t need any aid and now it has turned around and said yes it does need it.”
Ireland’s Green Party has called for a general election in January to provide “political certainty” amid the financial crisis.
“We have now reached a point where the Irish people need political certainty to take them beyond the coming two months,” John Gormley, leader of the party which is a junion partner of the country’s government, said.
“So, we believe it is time to fix a date for a general election in the second half of January 2011.”
Brian Cowen, Ireland’s prime minister, confirmed the decision at a news conference in Dublin, the Irish capital, on Sunday.
It came after a series of conference calls gathering European partners and G7 counterparts from the US, Japan and Canada, amid pressure to plug a giant hole that has already seen the Irish government pump $70bn into its failed banks.
Further weeks of negotiations are expected to define the fund’s terms, conditions and precise size.
However it is still unclear whether the second euro zone bailout in six months, after Greece, will be sufficient to prevent financial crises hitting other debt-laden countries such as Portugal and Spain.
“Ireland may have accepted a bailout this weekend but the euro zone’s debt crisis is far from over,” Kathleen Brooks, a research director at trading site Forex.com, told the AFP news agency.
“Portugal and Spain, and maybe even Italy, have very high debt burdens and may eventually have to use the European bailout fund to access finance.”
“Portugal’s finance minister has said that if Portuguese bond yields spike above 7.0 per cent then it is unsustainable for the government to borrow in the capital markets.
“Portugal’s yields are currently 6.72 per cent – so very close to that threshold.”
Meanwhile Ireland’s government is putting the finishing touches on a $20.5bn austerity plan rolled out over four years, which would involve public spending cuts and tax rises.
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 it will keep its ultra-low 12.5 per cent corporate tax rate – a magnet for foreign investment but an irritant to many EU partners, which see it as a form of unfair competition.
John Walsh, the editor of Business and Finance magazine, told Al Jazeera that Ireland will have to pay “a very, very high political price” for the crisis.
“A lot of people are blaming the euro for this but much of the problem has to do with domestic policies. We joined the euro and we probably did have artificially-low interest rates during a period of unprecedented economic expansion,” he said.
“On the other hand there were fiscal levers we could have pulled to dampen that enthusiasm, to dampen some of that growth.”
But the government did the complete opposite, Walsh said, which resulted in the economy going into overdrive – meaning it was always going to become overheated.
“A big component of that was the banking system, where the banks grew far too big for the size of the economy. Now they have collapsed and left the country in economic ruin.”