EU, IMF Weigh Irish Bailout

Officials from the European Union and the International Monetary Fund are meeting in Dublin this weekend to discuss an economic bailout plan for Ireland. Host Liane Hansen speaks with NPR's Philip Reeves about the talks.

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LIANE HANSEN, host:

As NATO leaders were meeting in Lisbon, officials from the European Union and the International Monetary Fund were spending the weekend in Dublin trying to hammer out a deal to ease Ireland's deep economic crisis. Ireland's finance minister said today that his country will seek a bailout that could total tens of billions of euros. Ireland's crisis is so damaging the economies of other European countries that some analysts believe the survival of the euro is at stake.

NPR's Philip Reeves is following the talks. And, Philip, what's the precise focus of these talks?

PHILIP REEVES: Well, firstly, the state of the Irish government's finances, this year, one-third of what it spends is going to be borrowed. That's a massive budget deficit - 32 percent of GDP - way, way higher than the level permitted under eurozone rules.

Now, these visiting officials will also, though, be looking hard - and this is even more important I think - at the state of Ireland's banks that bust, thanks largely to bad loans run up during a property boom, a bubble that dramatically burst.

Businesses and institutions have been pulling their money out of the banks by the billions. The banks are underwritten by the Irish government, which can't afford to go on throwing vast sums at them to keep them liquid. So, the banks are now on life support, relying more and more on soft loans from the European Central Bank, the ECB. The ECB, by the way, is taking part in these talks. It's been getting worried about the scale of these loans.

A quarter of the funds that the ECB's lent to commercial banks in the eurozone has been going to the Irish banks.

HANSEN: Very complicated issue, and the talks are taking quite a while -several days. Tell us what's going on.

REEVES: Yes, and it is complex. They are dragging on and they may drag on further. They surely will, I think. Ireland's been very reluctant to admit that it needs help. A bailout is seen in Ireland as a loss of sovereignty. This is a highly emotive issue in Ireland, a country that had a painful struggle to win independence from the British.

Irish officials do now admit that they're in talks. They appear to be trying to play a kind of game of hard to get, brinkmanship, in the hope of easing the conditions that would come with any package.

There's one big issue in particular - bear with me, I know this is complex economics and I'm no economist myself - but many of Ireland's European neighbors - France, Germany and others, too - they want Ireland now to raise its rock-bottom corporate tax rate. It's been attracting some big international companies into Ireland, away from other parts of the European Union.

Irish officials have been saying that that is not negotiable. It's a central plank of their economic policy and they're going to be very, very reluctant to give it up.

HANSEN: The ears of Europe want to hear the news: are there any developments? Is there any progress?

REEVES: Well, the Irish cabinet's meeting this weekend and that looks as if the government is going to unveil a major plan to cut its deficit right back to three percent over four years. This has been long awaited; they've been working on it for a long time. It's now expected to be unveiled early this week before any announcement of a European-IMF deal.

It looks like what the government's doing - and, by the way, the government is staggering along with a tiny majority, so there's a lot of domestic politics here - it seems to be hoping that by doing that it'll create the impression that it's calling the shots and not outsiders from Europe or the IMF. Whether the Irish people will be taken in by this is a different question.

They're going to discover this means tax hikes for them, some painful public spending cuts and that's a lot for people to bear. They've got to save six billion just next year. That's a lot for a population that's smaller than that of Colorado.

HANSEN: NPR's Philip Reeves following the talks in Dublin, Ireland. Thank you so much.

REEVES: You're welcome.

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