THE GOVERNMENT has formally applied for a multibillion-euro rescue package from the European Union and the International Monetary Fund that will result in external oversight of the performance of the economy for at least three years.
The decision to seek the bailout from the European Commission, the European Central Bank and the IMF was confirmed by Taoiseach Brian Cowen and Minister for Finance Brian Lenihan at a press conference at 8.30pm.
Yesterday’s Cabinet decision to accept external funding came after intense negotiation involving the Government and the international bodies since Thursday. A simulataneous meeting of the finance ministers from EU euro-zone states also met yesterday to ratify the package. Mr Lenihan also said last night that the G7, comprising the seven most powerful countries in the world, had met last night to give its approval to the deal. It was also disclosed that, separately, Britain and Sweden were both prepared to extend loans to Ireland.
Neither Mr Cowen nor Mr Lenihan would disclose the sum involved in the loan facility, saying the figure would not be determined until negotiations lasting an estimated two weeks had concluded. Mr Lenihan said the sum involved would be less than €100 billion.
They also indicated that the programme, as agreed with the international bodies, would last three years. A Government source said that its main achievement in the negotiations was protecting the 12.5 per cent corporation tax which will not form part of the bailout deal.
A European source briefed on the talks said a sum between €80 billion and €90 billion was likely to be involved but a statement from the finance ministers did not specify the amount.
Mr Cowen said the package would have two elements. The first would be a deep restructuring of the Irish banks. “Irish banks will become significantly smaller than they were in the past,” he said.
He said the second part of the “strong policy programme” would be increased taxes and reduced spending in order to reduce Government borrowing by €15 billion over the next four years.
On the question of relinquishing sovereignty, Mr Cowen said the Budget and four-year plan would not be changed by the external bodies but said “a small, open economy like Ireland did not have the luxury of taking decisions without reference to the wider world”.
Mr Lenihan said the State’s options had narrowed considerably since the banking and construction collapses in 2008.
“It is essential that we maintain economic continuity, that everyone understands that ATM machines function, that salaries are paid, that the big workforce that has built up here continues to be employed, that a large number of overseas investors continue to invest in enterprise,” he said.
In Brussels, EU economic and monetary affairs commissioner Olli Rehn said the finance ministers welcomed the Government’s request for aid. “Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” he said.
Mr Rehn said a team of European Commission, European Central Bank and IMF experts in Ireland would prepare the details of the assistance package by the end of the month, adding it would be a three-year loan programme.
Central Bank Governor Patrick Honohan said last night the agreement would set the economy “on a more secure path”. The IMF’s managing director Dominique Strauss-Kahn said that its team in Ireland would now hold “swift discussions on an economic programme with the Irish authorities, the Commission, and the ECB.”
The Cabinet also ratified the four-year plan which Mr Cowen said would involve €10 billion of cuts and €5 billion of new taxes between now and 2014. Among the key elements of the plan will be a €1 cut in the minimum wage, a 10 per cent cut in social welfare over four years, as well as an agreement to reduce public sector numbers by 28,000.
Mr Cowen denied that his party or the people had lost faith in him and also confirmed it was his intention to lead Fianna Fáil into the next election.
Doubts over Mr Cowen’s leadership of Fianna Fáil were raised privately by a number of its TDs yesterday.
A former minister, Willie O’Dea, said that the Government’s handling of the crisis had “been disastrously mismanaged by a total lack of a coherent communications strategy. A general election can’t be far away,” he said.
Fine Gael’s finance spokesman Michael Noonan said yesterday that the Government had relinquished its sovereignty. “The IMF can intervene on a quarterly basis. That shows who is in charge,” he said.
The loan will be arranged through the IMF and the European Financial Stability Facility, a €440 million fund that can be accessed by EU member states in financial difficulty.