Government confirms bailout loan application

The government tonight confirmed it will seek a bailout loan from the International Monetary Fund (IMF) and Europe.

After an emergency Cabinet meeting lasting several hours in Dublin and talks with EU states, ministers signed off on plans for the rescue package.

Finance Minster Brian Lenihan earlier conceded the bank crisis is too big for the country too handle.

Taoiseach Brian Cowen said the bailout application would address the budgetary challenges of the Irish economy.

The amount of funding being applied for will be decided during the negotiations.

Mr Cowen also confirmed that the controversially low 12.5% corporation tax will not be touched.

``A central element of the programme will also be to support further deep restructuring and the restoration of the long term viability and financial health of the Irish banking system,'' Mr Cowen said.

The loan will be arranged through the IMF and the European Financial Stability Facility.

Mr Lenihan said the UK and Sweden have also offered to help fund the package.

Europe's finance ministers said in a statement tonight that ``decisive'' action on Ireland's economic problems should now restore ``robust and sustainable growth''.

The joint statement from the eurozone and non-euro member states welcomed Ireland’s formal request for aid and said the member states agreed with the European Commission and the European central Bank that “providing assistance to Ireland is warranted to safeguard financial stability in the EU and the euro area”.

It went on: “In the context of a joint EU-IMF programme, the financial assistance package to the Irish state should be financed from the European financial stabilisation mechanism (EFSM) and the European financial stability facility (EFSF), possibly supplemented by bilateral loans to be negotiated by EU member states. The UK and Sweden have already indicated today that they stand ready to consider a bilateral loan.”

The EFSM is a €60bn bail-out scheme involving all EU countries and to which the UK contributes about 12%.

The EFSF is a €440bn pot of money set up earlier this year in the wake of the Greek economic crisis as a central fund to help any eurozone member state in difficulty, and to which only eurozone countries contribute.

Any IMF contribution would include a 4.5% UK contribution.

Tonight’s statement said the combination of support for Ireland would be provided “under a strong policy programme which will be negotiated with the Irish authorities by the Commission and the IMF, in liaison with the ECB”.

The ministers said the programme would address Ireland’s fiscal challenges “in a decisive manner”, building on the economic reforms expected to be published by Dublin in its four-year budget strategy due out next week.

Brussels expects the strategy to give details of Ireland’s commitment to budget cuts of €6bn next year as part of efforts to get a massive deficit of 32% of GDP down to just 3% by 2014.

“Given the strong fundamentals of the Irish economy, decisive implementation of the programme should allow a return to a robust and sustainable growth, safeguarding economic and social cohesion.”

The programme will include a fund “for potential future capital needs of the banking sector”.

Dominique Strauss-Kahn, managing director of the IMF, added his support to Ireland‘s application.

“I welcome the response from the European Union and euro-area Member States to the Irish Government’s request for financial assistance to safeguard financial stability,” Mr Strauss-Kahn said.

“At the request of the Irish authorities, the IMF stands ready to join this effort, including through a multi-year loan.

“An IMF team, currently in Ireland for technical talks, will now begin to hold swift discussions on an economic program with the Irish authorities, the European Commission, and the European Central Bank.”

The government issued the following statement on the international bailout planned to bolster its crisis-hit economy:

Government's bailout statement

“The Government today agreed to request financial support from the European Union and the Euro Area Members States. The IMF will also be requested to assist in the provision of support.

“The Government welcomes the agreement reached at the Eurogroup meeting today that providing assistance to Ireland is warranted to safeguard financial stability in the EU and in the Euro Area.

“In the context of a joint programme EU/IMF, the financial assistance package to the Irish state should be financed from the European financial stabilisation mechanism (EFSM) and the European financial stability facility (EFSF), possibly supplemented by bilateral loans to be negotiated by EU Member States.

“EU and euro-area financial support will be provided under a strong policy programme which will be negotiated with the Irish authorities by the Commission and the IMF, in liaison with the ECB.

“The programme will address the budgetary challenges of the Irish economy in a decisive manner on the basis of the ambitious budgetary adjustment and comprehensive structural reforms that will be contained in the Government’s Four Year Budgetary Strategy.

“Given the underlying strengths of the Irish economy, decisive implementation of the programme should allow a return to a robust and sustainable growth, safeguarding the economic and social position of the people of Ireland.

“A central element of the programme will also be to support further deep restructuring and the restoration of the long-term viability and financial health of the Irish banking system. It will build on the extensive measures taken by Ireland to strengthen its banking sector, via guarantees, recapitalisation and asset segregation.

“These measures have helped to maintain financial stability of the Irish banking sector at a time the both the banking system and the Irish economy have confronted significant challenges reflecting both domestic and international factors.

“The programme will address the potential future capital needs of the banking sector. By building on the measures already taken by Ireland to address stress in its banking sector, a comprehensive range of measures – including deleveraging and restructuring of the banking sector – will contribute to ensuring that the banking system performs its role in the functioning of the economy.

“Since the last Eurogroup meeting on the 16th November there has been very constructive and positive engagement and dialogue between the Irish authorities and the Commission, the ECB and the IMF in order to determine the best way to provide necessary support to address continuing market risks, especially as regard the banking system, in the context of the four-year budgetary plan and the upcoming budget.”