ANALYSIS:Events moved rapidly as the international authorities revolved to bring certainty over Irelands fate before markets reopened today
WITH THE confirmation of a drastic run on corporate deposits from Allied Irish Banks (AIB), high-level contacts between Dublin, Brussels, Frankfurt and Washington set in motion talks which led to the Government’s final capitulation last evening.
The deposit flight from AIB, disclosed only a week after Bank of Ireland declared a similar decline, appears to have brought matters to a head. With Irish borrowing costs spiking upwards again late on Friday, other weakened countries were in danger of pressure today.
The Government’s surrender quickly followed. High-level participants in the process say it would have been an invitation for trouble to allow markets to reopen today without a decision on Irish aid.
This is fully in keeping with the driving thrust of Europe’s recent manoeuvres in Ireland, to prevent disruption in Dublin from contaminating the wider currency. Despite Brian Cowen’s efforts to hold back the inevitable, the events of the last three weeks have seen all control over the situation slip from his hands.
The total amount of aid will be between €80 billion and €90 billion, said two sources briefed on the talks. Still at issue, however, is whether Germany and France maintain their push for an increase in Ireland’s 12.5 per cent corporation tax rate.
On this front there were conflicting signals late last night. A senior EU Commission official and another well-placed source said the expectation in the wake of an EU finance ministers’ teleconference was that an increase would not be sought.
A European diplomatic source argued, however, that this battle remains to be fought. The source also said France and Germany “are not alone”. Referring to the EU ministers’ endorsement the €6 billion 2011 budget target and the €15 billion target in the four-year plan, the source said that only the targets stand approved. The plans themselves are not.
For the Government, the problem here is that it now has to negotiate a “strong policy” programme with its European and IMF sponsors. That its hand is weak is obvious in the extreme. Once the very exemplar of the merits of EU membership, Ireland now relies on its European partners to keep the lights on. It’s that bad.
Even as the leaders of the western world gathered in Lisbon on Friday for a Nato summit, Ireland was a prime talking point. The global powers were here to discuss how they might end the Afghan war but the Irish death-dance came up when German chancellor Angela Merkel met French president Nicolas Sarkozy and British prime minister David Cameron.
Although Cameron’s predecessor Gordon Brown could luxuriate on the sidelines of the Greek debt debacle, Downing Street has conceded in recent days that its better interest lies in supporting the Irish rescue. For a myriad of historical reasons, it was an extraordinary turn of events. More than that, however, the move attests to the grave extent of the current peril.
This also helps explain the willingness of another non-euro country, Sweden, to step into the breach, on top of loans from 14 other euro countries. Only six months months have passed since Ireland itself underwrote loans to Greece.
There is more. On Saturday evening, Herman Van Rompuy and José Manuel Barroso briefed Barack Obama on Ireland’s woes. Washington looks on anxiously from the sidelines, pledging “moral support” for Ireland.
Cowen wasn’t in Lisbon. But his picture dominating the front of a Portuguese newspaper – even when Obama was in town – points to growing fears that Lisbon will be next to fall over the precipice. If that happens, Spain is likely to come under renewed pressure.
Concern to avoid that very fate can be measured in the speed with which EU ministers gave their preliminary approval last night. While contacts between officials throughout Europe continued throughout the weekend, it was only when Brian Lenihan spoke at lunchtime that the public was finally told the unavoidable truth.
To an extent, said a well-placed European source, EU and IMF officials had been working in the dark until the Government’s surrender. Now that the preliminaries have been dealt with, what comes next is the formal negotiation of the rescue plan with the European Commission and the IMF.
These talks will be tough. The package will be onerous and it will be costly. The point of defeat has been reached. The struggle for recovery has not even begun.
