DUBLIN, Sept. 30 (Reuters) - Ireland revealed it faces a bill of up to 50 billion euros ($68 billion) to clean up its banks, equating to over 11,000 euros per head of a recession-weary population already reeling from savage government cutbacks.
Unveiling the latest in a string of bank bailouts, Finance Minister Brian Lenihan promised on Thursday that Ireland had arrived at the endgame for dealing with massive property losses but warned years of pain lay ahead for taxpayers.
"We have to bring closure to this matter and that is what we have done today," Lenihan, charged with picking up the pieces of Ireland’s property-fuelled "Celtic Tiger" economic boom, said.
"Of course these figures are horrendous but they can be managed over a 10 year period."
Fears Ireland will follow Greece by turning to its European Union partners and the IMF for help abated, however, after Lenihan cancelled all bond auctions for the rest of the year, highlighting the fact that a growing but well-structured debt portfolio means there is no impending liquidity crisis.
The premium investors demand to hold Irish 10-year debt over benchmark German bunds narrowed to 457 bps, after hitting a euro lifetime high of 475 bps earlier this week. The cost of insuring Irish debt against default also fell.
Ireland still has to pay almost three times as much interest on new borrowings as Germany, however, reflecting the fact that the government’s budget deficit will blow out to 32 percent of Ireland’s economic output this year, more than 10 times EU’s 3 percent cap and by far the worst in the union.
"What they are doing is really giving us the bad news upfront. I think the market needs to know, and here it is," said Padhraic Garvey, interest rate strategist at ING.
"It’s a pretty astonishing deficit number, it’s higher than the national debt a few years ago which is an incredible situation to be in."
ELECTION LOOMS
Central Bank Governor Patrick Honohan said planned spending cuts next year of 3 billion euros would not be enough and called on the government to spell out to people what they are in for.
"It is still a figure that can be worked out without external help," Honohan told national broadcaster RTE. "It is in that sense that it is manageable, not painless by any means."
Although the government faced big protests early last year when tens of thousands of people took to the streets, opposition has largely fizzled out with no sign of the unrest seen in Greece as austerity measures began to bite.
"If this was France they (protesters) would be pulling the place to pieces," said retired plumber John Barrett. "Here, look at it, nobody, not a bother, they don’t do nothing. Look at the two protests from the unions, nothing really happened."
Prime Minister Brian Cowen’s government has a wafer-thin majority in parliament, however, and by-elections in the first quarter of next year are almost certain to wipe out his ability to pass legislation, triggering a general election.
Thursday’s package will see Dublin pour 29.3 billion euros into stricken Anglo Irish Bank alone but that could rise to over 34 billion euros should the property market weaken further, in line with an earlier estimate by Standard & Poor’s.
Lender Irish Nationwide will need an extra 2.7 billion euros on top of 2.7 billion euros already earmarked. Lenihan said subordinated bondholders in both Anglo and Irish Nationwide will also take a hit on their investments.
In a surprise move, he also revealed the government would take a majority stake in Allied Irish Banks (AIB), which now needs an additional 3 billion euros in capital on top of an existing requirement of 7.4 billion.
Analysts expect the government will take a 90 percent stake in AIB.
Shares in what was once Ireland’s biggest bank were down nearly 9 percent while Bank of Ireland rose 10 percent after Dublin said it would not need any additional capital.
Bancassurer Irish Life & Permanent, the last of Ireland’s fully independent listed lenders, was up 2 percent.
Thursday’s bailout means the government’s total debt pile will swell to 99 percent of GDP this year from 25 percent prior to the crisis and at 155 billion euros will equate to over 100,000 euros for each of Ireland’s 1.5 million households.
Rating agency Fitch said Ireland’s AA- rating was still under threat but that Lenihan’s measures bought Dublin breathing space to put together a four-year fiscal plan due in November.
"The government has announced already that it is staying out of the markets for at least a couple of months," senior analyst Chris Pryce told Reuters in an interview with Reuters.
"So it has time to think and time to react in a measured way."
