Cost of Ireland's bank bail-out to hit €40 bn
The cost of Ireland's banking bail-out will rise to €40 billion (£34bn), the authorities have announced, placing an unprecedented strain on the nation's finances.
10:00AM BST 30 Sep 2010
The increase in the bill to bail out Anglo-Irish bank and other stricken lenders will push the country's budget deficit up to 32 per cent of GDP, more than ten times the limit imposed on eurozone economies by Brussels.
Worries over the costs of rescuing the financial sector has lead to sharp rises in the premium Dublin must pay to borrow on international markets.
The Government is now hoping its strategy of transparency over the bail-out bill – which amounts to a fifth of the total wealth generated by the entire economy in a year – will win back investors and restore the flow of credit through the economy.
Exposed as among Europe's most overstretched by the credit crisis, Anglo Irish has aroused widespread anger throughout the country. The bank lent heavily during a decade-long property boom in the so-called Celtic Tiger economy but found many of its loans worthless as the bubble burst.
However the Treasury insists that bailing out the lender is the only option because its collapse would "bring down" the whole country.
So far ploughed €29.5bn has been ploughed into Anglo Irish, and the authorities warn that it could need an additional $5bn under a worst-case scenario.
In addition, Allied Irish Banks will need to raise an additional €3bn by the end of the year. Support for Irish Nationwide will rise to €5.4bn from €2.7 bn.
"This is the only course to follow if we are to ensure the future economic wellbeing of our society," Brian Lenihan, the Finance Minister, said today.
"We have to bring closure to this matter and that is what we have done.
"Of course these figures are horrendous but they can be managed over a 10-year period and they will be managed in that way."
Ireland's central bank said the extra cost of bailing out the banks would force the government to make further budget cuts.
Mr Lenihan said Dublin would aim to slice more than an existing target of €3bn off its 2011 budget.
He said he would also outline a four-year plan in November to get its shortfall to below 3pc of GDP by 2014.
European Union officials had pressed Dublin to come up with a detailed plan for getting its fiscal gap – the worst in the bloc – under control within five years.