Dublin Ireland’s banks will be pruned down, merged or sold as part of a massive EU-IMF bailout taking shape, the government said Monday as a shellshocked nation came to grips with its failure to protect and revive its banks.
Crucially, some experts say the rescue may have come too late to save the next weak link, Portugal, from a similar fate. Ireland’s crisis also appears likely to force the early departure of its deeply unpopular government, calling into doubt the credibility of Prime Minister Brian Cowen’s four-year austerity plans.
Finance Minister Brian Lenihan said the bailout was necessary because Ireland’s banks have become wholly dependent on loans from the European Central Bank and, just like the government, look likely to be frozen out of normal credit markets for at least a year.
The banks invested aggressively in runaway property markets at home and abroad for a decade and were hit hard when the bubble burst. The estimated cost of bailing them out has been repeatedly raised beyond 50 billion — too big for the Irish to finance at a time when they were being pushed out of bond markets.
The shock of Ireland’s decision to seek a bailout, after weeks of denying it needed one, has proved too much for the fragile government.
The junior member of the coalition, the Green Party, stunned Cowen and his Fianna Fail party by announcing Monday they want parliament dissolved in January for an early election. A Green withdrawal would destroy Cowen’s three-vote parliamentary majority.
Green Party leader John Gormley said his party would support Cowen through the Dec. 7 vote on the 2011 budget as well as the related four-year plan and the expected flow of the bailout money in coming weeks. However, he expected Fianna Fail to concede Ireland needs a new government.
“Leaving the country without a government while these matters are unresolved would be very damaging and would breach our duty of care,” Gormley said. “But we have now reached a point where the Irish people need political certainty to take them beyond the coming two months.”
The Greens’ six lawmakers since 2007 have propped up Fianna Fail, which has been hoping to cling to power until 2012.