A few weeks after investors sent yields on Irish government bonds skywards, Ireland has submitted an official request for aid from the European Union (EU). The move is in order to prevent a flight of capital from Ireland's commercial banks which would cause a collapse of the country's financial system.
EU finance ministers of course agreed immediately to provide aid, in order to "maintain the stability of the financial system in the euro bloc. However, they said that it would take weeks to agree on the terms of the aid. From the latest statements by the Irish finance minister, Brian Leniham, and the governor of its central bank, Maurice O'Connell, it appears that the country will ask for tens of billions of euros.
Financial markets have reacted positively to the Irish aid request: the euro has strengthened to $1.377, and futures contracts on Wall Street stock indices are up about 0.6%.
Irelands fiscal deficit is expected to swell to 32% of GDP this year (€15 billion). The government plans to narrow the deficit to 3% of GDP within four years through massive budget cuts.
Published by Globes [online], Israel business news - www.globes-online.com - on November 22, 2010
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