Monday, November 22, 2010

Ireland seeks IMF/EU help

Sanity has prevailed in Dublin as the Ireland government has formally requested assistance from the IMF and the EU. Details at this stage are light, but the expectation appears to be that the package will be perhaps a bit less than 100 billion Euro. This compares with a similar deal for Greece where a 110 billion Euro rescue package was negotiated earlier this year.

The funding will come from a combination of the European Financial Stability Mechanism (EFSM) and the European Financial Stability Facility (EFSF). The IMF will also chip in with a multi-year loan of up to 50% of what Europe provides. Bilateral loans could also form part of the package , with Britain and Sweden aleady indicating they could assist.

This is exactly what the European Financial Stability Facility was established for. As we discussed at the time it was established in May this year, it would not solve debt problems in Europe, but it would provide stability while fiscal austerity and financial restructuring of banks played out where necessary.

Ireland has been battling with large fiscal deficits, largely brought on by the bailout of banking sector, which have already seen 50 billion Euro. The process of putting the economy back onto a sustainable fiscal path will still be a significant challenge, but it can now play out in an orderly fashion.