EU nations agreed on an 85 billion euros ($113 billion) bailout deal for Ireland on Sunday to help the debt-struck country with its banking crisis, and sketched out new rules for future emergencies in an effort to restore faith in the euro currency.
According to a statement by the Irish government, the country will take 10 billion immediately to boost the capital reserves of its banks. Another 25 billion earmarked for the banks will remain in reserve.
The Irish government’s public finances will receive 50 billion, to be drawn upon as necessary.
The statement said the International Monetary Fund, the 16 eurozone nations and the European Commission will be involved. Britain, Sweden and Denmark will offer bilateral loans.
“It provides Ireland with vital time and space to successfully and conclusively address the unprecedented problems that we’ve been dealing with since this global economic crisis began,” said Irish Prime Minister Brian Cowen at a press conference in Dublin.
“Most importantly of all, if we didn’t have this program, we would have to go back to the markets, which as you know are at prohibitive rates,” Cowen said. Yields on Ireland’s 10-year bond rose in the past week to euro-era highs.
Of the 85 billion, Ireland will contribute 17.5 billion of its own money — transferring cash from its pension reserves, previously prohibited by EU law, to help fill the gap in its government finances.
The statement says the average interest rate Ireland will pay on its loans is 5.8 percent. This total reflects higher rates to be charged by EU sources, and lower rates from IMF and national donors.
Greece is paying 5.2 percent interest on its own bailout from May. Ireland’s aid package includes loans that range from 3 to 7 1/2 years, longer than the Greeks’ three-year deal.
The European Commission granted Ireland an extra year to bring down its deficit to within the EU limit of 3 percent of GDP. It will now have until 2015, compared with 2014 previously.
EU officials say they have also agreed on a permanent mechanism that would allow a country to restructure its debts after 2013 once it has been deemed insolvent.
Jean-Claude Juncker, the head of the Eurogroup, said private creditors would only be forced to take losses if eurozone ministers agree unanimously that the country has run out of money.
He said that if a country is merely facing a crisis of liquidity it would get financial help similar to the bailout agreed for Ireland.
European Central Bank chief Jean-Claude Trichet said private sector involvement “is fully consistent” with existing policies of the International Monetary Fund.