This week European ministers reached an agreement to provide a failing Irish banking economy with a huge eighty five billion euro bailout. While it was unanimously agreed upon by the 
ministers of the Eurozone, it was far from a good natured unanimous vote, with UK Chancellor George Osborne agreeing to loan only if they are excluded from all future bail out agreements as of 2013. This sort of tenuous relationship points to the stress caused by another bail-out coming in the heels of Greece’s bailout earlier. Everything from the interest rate charged to the use of the Euros were criticized and compared relative to the bailout of Greece in early 2010. The Eurozone has a right however to be upset, as the use of the Euros was largely left undefined and “up in the air”.
Only 10 billion of the borrowed funds are required for “recapitalization”, when a majority of the issue facing the banks is a lack of solvency that is directly impacting the access to capital and that in turn is making it difficult for businesses to hire or make any real meaningful long term expansion plans. These plans will be key if the Irish business economy is going to make its substantial rebound without raising its coveted 12.5% corporate tax rate. This tax rate is closely ties into the recovery plans to utilize foreign companies to support an export driven strategy to move the country forward.
In addition to the 10 billion mentioned above there is an ambiguous “debt mechanism” that requires the EU to avoid the use of the rescue fund that is set to run out in 2013. However what was lost and make this ambiguous is that there are no real plans to define the “how” the measures are actually going to work. The general rule however is that the mechanism should force losses on private investors "only on a case by case basis", exactly what that means remains to be seen. It has been mentioned that it will look similar to Iceland’s approach to let banks fail and investors fall, only to come back after the currency is devalued stronger than before. It is interesting however that if the banks are publicly owned then the losses associated with economic downturn should be passé on to those who were not minding the store closely enough. This will be compounded by the required austerity plan that will cut public services for those unemployed at the greatest time of crisis. The requirement for the bailout is the requirement that the government reduce its excessive debt by 2015 to less than 3%.
With Ireland’s banking sector largely nationalized and the lending standards raised to stop the excessive bank losses fewer and fewer businesses are able to find the funding that they need to stay afloat in the worst recession in recent history for the country. With access to capital cut, and the income from failed home loans strangled through the rise in foreclosures how can the emerald jewel hang in there until the massive, explosive turn around that the government is forecasting here in a few years? The short answer, raise the corporate tax rate that has attracted so many foreign companies to set up shop in the country. Last week the esteemed Sir Michael Smurfit hinted that a temporary hike in corporate interest rate may be right in line as part of a strategy to bring the country up to a level of financial stability. This however was not without its share of doubters who fear that this policy may actually force companies to leave the country once the rate is hiked, thus making the policy counterproductive.
