The Republic of Ireland is edging closer to accepting a multi-billion-euro cash injection into its lossmaking banking sector, after the nation's finance minister admitted that Dublin will have to accept external aid.
Brian Lenihan told parliament on Thursday that it would be a "very desirable outcome" if a continency fund is set up by the European Union, the International Monetary Fund and the European Central Bank.
Earlier, Irish central bank Governor Patrick Honohan said Dublin was expecting a loan offer totaling "tens of billions" of euros at an interest of 5 per cent. That would represent a good deal for Ireland, with its government bond yields currently perched at around 8 per cent.
The Irish government had previously insisted that it would not be requiring external help and had maintained that it was well funded until next summer.
Of key concern to authorities is Ireland's bloated quasi-nationalized banking system, which economists say is largely financed by unconventional ECB funding.
Talks between Irish authorities and counterparts from the EU, ECB and the IMF are expected to intensify today towards determining the size of the loan and the conditions Dublin will have to fulfil to access it.
France and Germany are reported to be unhappy with the Republic's relatively low 12.5% corporation tax rate, which is widely credited with fueling a large inflow of foreign investment into Ireland during the boom years leading up to the crisis. Britain's Financial Times newspaper quoted one French official as saying the low tax rate was "almost predatory."
But Deputy Prime Minister Mary Coughlan insisted yesterday that the corporation tax was "non-negotiable" as it was cornerstone of the country's economic strategy.
Budget cutbacks totaling at least 15 billion euros over the next four years are expected to be imposed on Dublin by the EU and the IMF in return for financial support. The government is already poised to unveil 6 billion-euro worth of cuts in its 2011 Budget.
Earlier, Lenihan told state broadcaster RTE that he felt "no sense of shame" over fighting for the country's best interests.
Accepting a state bailout would represent a major turnaround in fortunes for the Irish economy - lauded only a few years back as the "Celtic Tiger," before the nation's housing bubble collapsed.
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