Ireland: Bailout loan could total $115 billion

By Shawn Pogatchnik

Associated Press

Published: Wednesday, Nov. 24 2010 6:15 a.m. MST

DUBLIN — Ireland's bailout loan could total €85 billion ($115 billion), Prime Minister Brian Cowen announced Wednesday, but some analysts said that figure would be much too small to save the nation from eventual default.

Bank shares, meanwhile, plummeted for a third straight day on the Irish Stock Exchange in growing expectation that investors would be wiped out as the government is forced to seize total control of the country's two dominant banks, Allied Irish and Bank of Ireland.

"The government is completely in denial about the amount of money they'll have to borrow," said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economics adviser to IBM in Europe.

Cowen told lawmakers the €85 billion would represent an overdraft or credit line, not the total required immediately, and was still subject to detailed negotiations with International Monetary Fund and European Commission experts who descended last week on Dublin.

Irish broadcaster RTE said about half of the €85 billion would be earmarked for covering Ireland's expected deficits through 2013, the other half made available to bolster the banks' cash reserves.

Some financial analysts declared that Ireland — crippled both by a runaway bank-bailout program it can no longer afford and the worst deficit in Europe — will need far more cash to forestall national default in a few more years, when many government bonds and the developing EU-IMF loan come due for repayment.

"If we do take this loan, then two to three years down the road we will be forced to restructure our sovereign debt. We will be in a full default across the entire country," said Gurdgiev.

He said Ireland needed between €120 billion ($160 billion) and €130 billion ($175 billion) now at sufficiently low rates of interest to avoid making its deficits worse. He said the banks would require even more if recent multibillion withdrawals of foreign deposits were to be reversed.

Gurdgiev compared Ireland's current plight to that of Greece, recipient of a €110 billion ($145 billion) EU-IMF rescue in May.

"Our economy is more than three times over-indebted than Greece. If Greece is insolvent, where does that put us?" he asked.

Ireland's financial shares suffered another bloodbath on the Irish Stock Exchange.

Bank of Ireland fell 27 percent to €0.22, a record low. Allied Irish fell 18 percent to €0.27, just off its record low of €0.25. Irish Life & Permanent — an insurance and mortgage specialist that has yet to receive a state bailout — fell 16 percent to €0.63, also a record low.

Ireland has already nationalized three other banks left bankrupt by the 2008 collapse of the country's decade-long real estate mania. Property prices have slumped by more than 50 percent, hundreds of thousands of homeowners are trapped in homes no longer worth what they owe, and many of Ireland's construction barons have declared bankruptcy or fled the country.

The government already owns 36 percent of Bank of Ireland and 18 percent of Allied Irish. The bailout experts' requirement for greater capital reserves will have to be provided by the government, a process that analysts say will quickly lead to both banks' nationalization, a fate that Ireland has spent billions trying to avoid.

"Irish banking shares will never — or not for a long time — be worth anything. The solution requires the total destruction of the existing share base," said David McWilliams, a former Irish Central Bank economist and European hedge fund manager.

Later Wednesday, the government plans to unveil a four-year austerity plan, a prerequisite for Ireland's receipt of any EU-IMF aid.

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