Instant View: EU finance ministers agree Ireland rescue

LONDON (BestGrowthStock) – European Union finance ministers agreed an 85-billion-euro ($115 billion) rescue package for Ireland on Sunday which they said would help safeguard financial stability in the euro zone. Here are some reactions to the agreement:

EOIN FAHY, CHIEF ECONOMIST, KLEINWORT BENSON INVESTORS

“I think it makes perfect sense for the Irish government to use its own resources to the tune of 17.5 billion euros. Why borrow expensively when you have the money earning a half or a one percent interest rate sitting on cash deposit?

“If ever reserves were meant to be used I think it was in a case like this. If there was ever a rainy day, Ireland has met a rainy day.

“If you look at the size of the Irish banking system and you take 35 billion euros in extra liquidity or capital, either way it seems a very large amount of money and should be sufficient to make the banks stable.

“But we have passed the stage at which logic necessarily comes into effect when it comes to Irish banks. We are at the stage of it’s what do the markets believe, not what turns out to be true.”

DAVID BEGG, GENERAL SECRETARY, IRISH CONGRESS OF TRADE UNIONS

“On the interest rate, I think it’s quite severe even to the point of almost being penal. I can’t see any reason why it should be higher than the Greek rate which is 5.2 percent.

“The more worrying aspect of it is that our capacity to repay that debt is largely going to depend on our rate of economic growth in the future. I think, if you have the debt repayments substantially higher than the anticipated rate of growth, I think that’s an unsustainable combination.

“Without growth I think it’s very hard to achieve a fiscal adjustment. You need growth to do some of the heavy lifting. In order to get growth, you need investment.

“Private investment has pretty much collapsed as we know, so the only means of doing it will be through public investment and taking this enormous amount of money out of the national pension reserve fund is going to mitigate against that.”

AUSTIN HUGHES, CHIEF ECONOMIST, KBC BANK IRELAND

“The headline rate, from an economic perspective, looks just about affordable at 5.8 percent and, in that respect, I think the Irish economy will struggle but will manage to bear that burden, but I think there are other issues.

“The underlying cost of funding coming from Europe it seems to me is above the average 5.8 percent … there is an issue about whether other countries could actually handle that rate.

“If you look at a country like Portugal, its growth potential is lower and I don’t know that it has a similar fallback in terms of the pension reserve fund.

“It doesn’t have the exact same nature of problems in terms of the banking sector, but there is a concern that I have emerging in the early parts of this, that perhaps the underlying cost of this is more penal and it may well be an issue that exercises market concerns, whether this a facility that actually could be used again.”

JACK O’CONNOR, PRESIDENT, SERVICES, INDUSTRIAL, PROFESSIONAL, TECHNICAL UNION

“It is now clear why the National Recovery Plan unveiled last week provided for no investment in the economy from the National Pension Reserve Fund. The fund was earmarked to be poured into the black hole that the Irish banking system has become.

“The position now is that the National Recovery Plan must fly on a wing and a prayer with no provision for investment, nothing for job creation, and no mechanism to generate growth.

“Meanwhile, the senior bank bond holders are to be protected while the lowest paid and those most vulnerable people dependant on public provision are to be crucified.

“The agreement is a shameful indictment of the right-wing policies which have informed the government’s approach for the last 13 years and which now dominate thinking in the European Union institutions as well.”

“The plan unveiled today should have been announced in Lourdes because, short of a miracle, it is doomed to failure.”

JOAN BURTON, (IRISH) Labor PARTY SPOKESWOMAN ON FINANCE

“We really have two types of banks now left in Ireland. In this new system we will have survivor banks and we also clearly have non-sustainable banks.

“The European and the international negotiators have played much better poker than the Irish negotiators because we’re being asked to put up front on the table all the assets that we possess as a country.

“So we will utilize all the cash reserves and then we also put on the table the national pension reserve fund.

“So when we have exhausted those, the trap is closed on Ireland and we are hovelled as a country, and the EU and the IMF have us where they wanted us and our negotiators seem to have been less good at playing negotiations.”

BRIAN LUCEY, ASSOCIATE PROFESSOR OF FINANCE, TRINITY COLLEGE DUBLIN

“I’ve always been firmly of the view that the resolution to this (problem) has to involve all sides taking pain, and once again, the senior bondholders … get away scot free. That was because of the fact that clearly our European partners were concerned about contagion. That has to be addressed at some stage.

“(The package is) going to cost a very significant amount of money. We’re putting up a fifth of it, and that’s going to mean that the average interest of the borrowed funds is actually higher than the 5.8 percent average across the package, and that’s quite a chunk of money.

“I’m stunned at the fact that we’re now putting 35 billion euros potentially into the banks, in reality I think it’s going to be at least that. We’ve already put at least 32 billion into them, so that’s going to be 67 billion euro, which is 50 percent of GNP, that’s a world record.”

ALAN MCQUAID, CHIEF ECONOMIST, BLOXHAM STOCKBROKERS

“The interest rate is a lot better than what was being said last week, though the 85 billion euro figure is no big surprise.

“I don’t think it’s too bad. If it’s under 6 (percent), they’ll be reasonably happy with that.

“Whether Ireland will be able to pay; that depends on too many things outside of Ireland’s control. We’re an open economy, so we’re highly dependent on external factors to go our way.

“If we can generate the growth from exports, hopefully that will boost employment and build the economy, but that depends on what happens in countries like the UK, the U.S. The domestic market, you can’t see much happening given the level of austerity that’s in place, so domestic demand is very weak.

“I think the problem is that the markets have moved. I don’t think they really care about Ireland any more, they’ve moved onto Portugal and Spain. The crisis has moved on. The politicians don’t seem to realize, but the markets have.”

PHILIP SHAW, CHIEF ECONOMIST, INVESTEC

“The 85 billion euro amount is exactly as suggested up to the weekend. One critical point was the loan rate — there were reports of the Irish government would be charged a rate of about 6.7 percent. The fact that it’s 6 percent or slightly below means that indicates the European Union has acknowledged that high debt service payments would be detrimental in helping the Irish government to close the budget gap. “Markets, from a domestic Irish point of view, will be concerned that there’s no certainty that the budget will be passed on December7, even though that does seem to be the likely scenario.

“They may also fret over a different government in a post election scenario trying to renegotiate some of the terms of the loan and the conditions attached to it.”

(Reporting by Mohammed Abbas, Sarah Young, Lorraine Turner, Tim Castle and Dublin newsroom; editing by Andrew Dobbie)

Instant View: EU finance ministers agree Ireland rescue