The Luck of the Irish
Check out the following commentary by Economics Finance blog contributor Tyler Stoffers.
Ireland’s ailing economy is set to receive a three-year package of loans from the European Union of around $110 billion. This package is the first test of the system of rescue loans that the EU and International Monetary Fund have set up since the crisis of Greece’s economy last year. This 750 billion euro system was set up in order to reassure markets that countries would not be left incapable of paying off their debts in cases such as Ireland’s. Although this system was created as a safety net for desperate countries, Ireland had originally opposed receiving any of this aid. This was due to the fact that they did not want to have to surrender the control over their tax and spending policies. Particularly, their 12.5 % corporate tax rate. However despite Ireland’s desire to maintain in control, the country’s economy continued to struggle and Ireland was forced to give into the pressure. Ireland officially placed a request for aid which has been endorsed by the EU governments. The goal of this package is to repair the country’s budget and banking industry. Prime Minister Brian Cowen told reporters that banks “will become considerably smaller”. This announcement likely indicates downsizing the country’s two largest banks (Bank of Ireland and Allied Irish Banks PLC). Ireland has finally succumbed to the pressures of an ailing economy as well as from other euro-zone governments who feared the spread of this financial crisis. If these funds are able to pull Ireland out of this tough economic state, it could show the success of the 750 billion euro safety system and reassure markets for the future. Do you think that the loan package will be enough to allow the Irish economy to recover? How do you think this bailout will impact the US?