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Message: rish rescue may not be enough

http://www.nationalpost.com/Irish+rescue+enough/3859669/story.html

Jan Strupczewski And Padraic Halpin, Reuters · Friday, Nov. 19, 2010

DUBLIN - A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, EU sources said on Friday, but experts warned a rescue may not be enough to prevent contagion to other eurozone members.

Europe's single currency fell back late in the day and the risk premium investors demand to buy Irish debt instead of benchmark German bonds remained high as optimism about an aid deal was tempered by a sense the crisis is far from over.

A poll of participants at a high-level banking congress in Frankfurt showed nearly 75% believe the turmoil that has shaken Europe's currency bloc for much of the past year would rage on even after an Irish rescue, ensnaring other financially weak countries such as Portugal.

"As long as the fundamentals don't improve, the pressure will continue on other countries too," said Daniel Gros, head of the Centre of European Policy Studies in Brussels. "Many believe the eurozone is just moving from one crisis to the next."

Ireland's central bank chief has acknowledged the country needs a loan running into the tens of billions of euros to shore up a fragile banking sector that has grown dependent on ECB funds and seen an exodus of deposits over the past six months.

Allied Irish, once the country's largest listed lender, announced that customer accounts had plunged by €13-billion so far this year and that mortgage book arrears had continued to rise in the third quarter.

AIB is relying on the Irish government to bail it out after years of loose lending to property developers left it with a gaping capital hole in excess of €10-billion. "General funding market conditions in recent months have become increasingly challenging," the bank said in a statement.

Last week, larger rival Bank of Ireland signalled a €10-billion outflow of corporate deposits in the third quarter while bancassurer Irish Life & Permanent said it had suffered a €600-million outflow in the same period.

Unlike Bank of Ireland and Irish Life & Permanent, AIB did not indicate if the deposit withdrawal had tailed off.

The cost of supporting its ailing banks is forecast to push Ireland's deficit up to 32% of gross domestic product (GDP) this year, more than 10 times EU limits and by far the highest in the 16-nation currency zone.

Concerns about swelling bank liabilities and a German-led drive to create a system for restructuring stricken eurozone state debts has pushed Dublin's borrowing costs sharply higher since late October, forcing the government into rescue talks with European and IMF officials.

Irish Community Minister Pat Carey said the government would publish the details of a four-year fiscal plan to save €15-billion early next week. EU sources said the financial aid plan for Ireland would be presented at roughly the same time.

Sources have told Reuters Ireland may need assistance of between €45-billion and €90-billion, depending on whether it needs help only for its banks or for public debt as well



Read more: http://www.nationalpost.com/Irish+rescue+enough/3859669/story.html#ixzz15pHqmYyQ

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