European Finance Ministers met in Brussels overnight Sunday and agreed to an 85 billion euro bailout of Ireland and its broken banks.
With Ireland’s state pension funds putting in 17.5 billion euros, the actual outside contribution will be 67.5 billion.
That includes loans from he uK, Sweden and Denmark, as well as the EU and the IMF.
The facility will be for up to seven and a half years.
The meeting and agreement came a day after demonstrations in Dublin on Saturday saw tens of thousands of people take to the streets in a peaceful call for the Irish government and Prime Minister Brian Cowen to resign.
The deal saw market focus swing to the question of who’s next, Portugal or Spain.
Both countries attempted to get in pre-emptive strikes on Friday, declaring they didn’t need a bail out.
But that’s what Greece and Ireland claimed, and look what happened, close to 180 billion euros in bailouts and financial penury for the next decade.
Ireland will receive 67.5 billion euros from the European Union and International Monetary Fund and provide 17.5 billion euros from its own pension reserves,
A sticking point is the rate of interest that Ireland is going to pay.
Irish state radio claimed the interest rate could be 6.7%, with other reports suggesting a rate of 7% might be applied. It will be around 5.8%, depending on the length of the loans.
The opposition parties and the Greens say if the rate is not low enough (and not around 6%-7%), they will not support the package next year after the election and the expected heavy defeat for the government.
Dublin media reports said the rate would be around 5.5%, which is more than Greece’s 5.2%.
Ireland’s major banks, all of which will end up state-controlled when the bailout details are revealed, were hit with downgrades on Friday, one to junk bond status.
And suggestions that the bailout could require senior bondholders to help cover the massive losses, spooked markets and sent the cost of borrowing by Portugal, Spain and now Italy higher.
Prime Minister Brian Cowen’s Fianna Fail party lost a by-election to Sinn Fein, which is described as a "hard-left’ political party in the Republic.
The Sinn Fein winner vowed to force Cowen from office before he can pass an emergency 2011 budget being demanded as part of the international rescue.
That would see Ireland and the eurozone slump into a crisis of unprecedented proportions.
Standard & Poor’s credit ratings agency said it was lowering Anglo Irish Bank six notches to a junk-bond B grade.
Anglo Irish is the bank at the centre of all the problems and why the banks have proven to be the bottomless pit that have so far swallowed around 50 billion euros in actual and promised support.
It is estimated that the banks could chew up another 35 billion from the bailout, but there are tens of billions of domestic and foreign deposits to be considered as well.
And immediate 10 billion euros will be injected into the banks, with the remaining 25 billion available for a contingency next year after another detailed review (stress test?) of the banks and the billions of euros of dud loans still on their books.
S&P also cut the ratings on Bank of Ireland one notch to BBB+, and downgraded both Allied Irish Banks and Irish Life & Permanent one notch to BBB.
The agency said bonds issued by Anglo are particularly at risk of being discounted as part of the bailout.
It says Ireland "may be forced to reconsider its current supportive stance toward Anglo’s un-guaranteed debt".
Complicating matters for some was the move by Spain to take on the financial markets on Friday.
The Spanish Prime Minister warned financial traders not to bet against its debt or they will lose money.
PM José Luis Rodríguez Zapatero also ruled out any rescue package for the country even as the premiums demanded by investors to hold Spanish government debt over that of Germany’s rose to new all time highs (since the euro started in 1999).
“I should warn those investors who are short selling Spain that they are going to be wrong and will go against their own interests,” Mr Zapatero said in an interview with Barcelona-based broadcaster RAC1, according to Bloomberg. He “absolutely” ruled out any need for a rescue.
The yield on Spanish 10 year bonds jumped to 5.2% late last week, more than double the yield on 10 year German bonds.
Analysts say the cost of insuring against default via so-called credit default swaps (CDS) on German, French and Dutch bonds rose last week to levels well above those for the non-EMU states in Scandinavia.
Portugal also claimed on Friday that reports it was under pressure to get help were “totally false”.
The markets will conclude that it needs help.
After all, Ireland and before it, Greece, claimed for weeks they were not in need of a bailout, but one eventually was needed.
