Business

Irish Republic to get bail-out loan, says central bank

  • 18 November 2010
  • From the section Business
Media captionPatrick Honohan: 'We're talking about a very substantial loan'

Irish Central Bank governor Patrick Honohan has said he expects the Irish Republic to accept a "very substantial loan" as part of an EU-backed bail-out.

Mr Honohan told RTE radio he expected the loan to amount to "tens of billions" of euros.

The final decision will be up to the Irish government, which has said it has not agreed to a loan from Europe.

The comments come as a team of international officials meet in Dublin for further talks on the debt crisis.

Representatives from the International Monetary Fund, the European Central Bank and the EU will meet the Irish government, which says it has not even asked for aid.

'Game over'

Mr Honohan said that any loan would be substantial.

"It'll be a large loan because the purpose of the amount to be advanced or to be made available to be borrowed is to show that Ireland has sufficient firepower to deal with any concerns of the market. That's the purpose of it," he told RTE.

But the Irish Prime Minister, Brian Cowen, when asked about those comments said merely that the governor was entitled to his view.

Mr Cowen said he did not want to "pre-judge" the outcome of the talks.

An EU handout would be seen as a big loss of face for the Republic - essentially meaning that its survival and solvency were reliant on Brussels.

But BBC business editor Robert Peston said that in terms of Irish resistance to a bail-out, this was "game over".

"The Irish government could not conceivably go against the advice of its [eurozone] partners and its central bank," he said.

Were it to do so, commercial customers of Irish banks would accelerate withdrawals which would be devastating, he said.

BBC Ireland correspondent Mark Simpson added that it could be "a fortnight until we see what these loans look like".

'Matter of sovereignty'

Meanwhile, French Finance Minister Christine Lagarde told the BBC it was for the Irish government to determine whether it needed a bail-out.

Media captionBrian Cowen: 'We're looking at what the best options are both for Ireland and for the euro'

"It's a matter of national sovereignty within a group that is clearly supportive, that has a joint common good which is our currency. I trust the Irish government to be extremely sensible," she told Radio 4's Today programme.

"The real issue is: will the economy stand on its feet? Will the euro stand under the current circumstances in Ireland? And that's what the Irish government really has to focus its attention on."

European stock markets rose in morning trading as investors' confidence grew that an Irish rescue package would emerge in the coming days.

Leading share indexes in London, Paris and Frankfurt were all up more than 1%.

Borrowing costs

Fears about the stability of Irish banks has led to a rise in the price the Irish government - which has pumped billions into its banks - pays to borrow money.

Other eurozone countries that are also perceived as weak are seeing their borrowing costs rise too.

The latest discussions in Dublin follow a meeting in Brussels on Wednesday of European finance ministers.

The ministers said they had not held detailed discussions on a potential bail-out for the Irish Republic - because the Irish government had not requested financial help.

Without such a request, no assistance can be given, despite the wishes of some fellow eurozone countries, such as Portugal and Spain, who would like the issue to be settled in order to stop disorder on the financial markets.

The Irish government has stressed it does not need to borrow money for public spending until into next year.

But it has a gaping budget deficit and will shortly announce another severe round of spending cuts and possible tax rises to plug the gap.

And the country's banks have recently become heavily dependent on loans from the ECB.

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