The Great Debate UK

What is the extent of Ireland’s crisis?

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- Kathleen Brooks is research director at forex.com. The opinions expressed are her own. -

The euro’s resilience in the third quarter has been astonishing. Since reaching a low against the dollar in June, the single currency has appreciated by an impressive 14 percent. This has coincided with the Irish financial crisis reaching boiling point, culminating in the announcement on Thursday by the Irish authorities of the final bill for winding down Anglo Irish Bank.

The euro didn’t flinch, even though the sums are enormous. The Irish government estimates that it will cost 29.3 billion euros to rescue Anglo. And it doesn’t stop there. Allied Irish Bank requires more capital as does building society Irish Nationwide, which may bring the total bill for rescuing the financial sector to 50 billion euros, pushing the debt-to-GDP ratio up to 32 percent. The Irish government doesn’t even anticipate making a return on any of this money.
Ireland has so far funded itself on the open market and has not had to follow Greece to the European Financial Stability Facility (EFSF). But the final bill will fall on the Irish taxpayer.

Tax receipts for 2010 are expected to be 31 billion euros, according to a forecast from the Department of Finance. That is less than the final cost of winding up Anglo. With growth weak and the possibility of another recession on the horizon, it wouldn’t take much for the markets to force Ireland to the EFSF like they did to Greece.

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