Ireland said its four-year austerity plan would not be significantly changed in return for an EU-IMF bailout package to salvage its shattered banks, which elicited only modest relief in financial markets yesterday.
A top eurozone official said the first loans could flow in January, but European shares were flat in mid-morning trade and the euro only a little higher in response to an outline rescue deal meant to stop contagion spreading.
Economists doubted whether the second eurozone rescue in six months, after Greece, would be sufficient to stop markets targeting fellow straggler Portugal, or to prevent heavily indebted European states defaulting in the longer run.
Moody’s Investors Service said a capital injection would ease short-term funding problems for Irish banks, but added that a “multi-notch” downgrade of Ireland’s credit rating, still leaving it in the investment grade category, was now the most likely outcome.
However, eurozone policymakers expressed optimism.
“We guess that the first money shipment could be realized in the course of January,” chairman of eurozone finance ministers Jean-Claude Juncker told reporters, adding that he saw no immediate risk of contagion to other euro zone members.
European and IMF officials yesterday began thrashing out details of the loans —- expected to total 80 billion (US$110 billion) to 90 billion euros — while the government put the finishing touches to a drastic 15 billion euro austerity plan.
Irish Prime Minister Brian Cowen said the four-year program, to be announced tomorrow, would involve 10 billion euros in public spending cuts and 5 billion euros in tax rises, on top of two years of harsh austerity and recession already endured.
The government is expected to cut the minimum wage, slash social welfare spending, reduce the number of public employees and add a new property tax and higher income taxes.
Irish Finance Minister Brian Lenihan said the EU and the IMF had seen the outline of Ireland’s four-year plan and would not demand significant changes.
“I think it is unlikely that they will request changes in the plan,” Lenihan told state broadcaster RTE.
While the rescue package is expected to be less than the 110 billion euros provided for Greece in May, it will be larger as a proportion of national wealth and in per capita terms.
Portugal, next in capital markets’ crosshairs, rushed out a statement saying Sunday’s agreement by EU finance ministers to grant Ireland assistance should restore investors’ confidence in the 16-nation single currency area.
Financial market professionals and economists said the Irish bailout might bring short-term relief.
However, several voiced doubts about whether it would prevent Portugal being forced to seek assistance eventually.
“I think it means Portugal is next [to request help]. I don’t know if it will happen before the end of the year or after, but it’s almost inevitable now,” said Filipe Garcia at Informacao de Mercados Financeiros in Porto.
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