18/11/2010

Central Bank Governor Expects 'Substantial Loan'

The governor of Ireland's Central Bank has announced he expects the State to accept a 'substantial loan' from the EU.

Patrick Honohan said this morning that a sum up to "tens of billions" would be expected in order for Ireland to secure its banks.

Mr Honohan's comments coincide with a statement from the the European Commissioner for Economic and Monetary Affairs, Olli Rehn, who last night described the Irish Government as being committed to "intensifying the technical talks" aimed at dealing with the "serious problems" in the Irish banking sector.

Accepting a loan from the EU is expected to carry harsh conditions that could challenge elements of Ireland's sovereignty and ability to control its own economic decisions.

The Government will be negotiating frantically to prevent any increase in the €6 billion adjustment proposed for the 2011 budget and the €15 billion four-year plan adjustment, but it is unclear if the current austerity measures will be extended under the conditions of the increasingly probable loan deal.

Speaking on RTÉ's Morning Ireland, Mr Honohan said the negotiations were not about a "bailout", but would lead to a loan of tens of billions to Ireland, and that the Government would have to accept it.

Finance Minister Brian Lenihan is today attending talks, involving an analyst team from the European Commission, the European Central Bank, and the International Monetary Fund in Dublin to discuss the loan.

It is believed the same team were dispatched to Greece shortly before it was bailed out by the European Union earlier this year.

However, Mr Honohan did agree with yesterday's comments by Mr Lenihan that the deal being negotiated may not entail an actual transfer of money now, but just a demonstration of how much money could be made available to Ireland from the Eropean Central Bank (ECB) if "further difficulties materialised".

A move that would hopefully placate international traders, whose uncertainty has been aggravating Ireland's heavy borrowing costs.

The Central Bank Governor said Ireland's banks had the facilities to deal with the outflows of money Ireland was experiencing after its downgrading from the AAA credit rating and that IMF/ECB money as contingent funding which can be shown to international investors but does not have to be used.

(DW/GK)

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