The speculations have proven to be true: Ireland has asked the EU for receiving financial help. The state is determined to restructure its ailing banking system. Nonetheless, one could feel uneasy about the rescue…
In the last few weeks, we have blogged about the panic on the markets due to Ireland’s economic crisis (BNF 1) as well as its effects on bond prices (BNF 2). After days of hysteria, Ireland has finally applied for a loan by the EU and therefore needs at least 50 billion Euro. For a comparison: Ireland has a GDP of 160 billion Euro (ard.de). A Bloomberg report describes why Ireland’s last step seemed inevitable:
“The aid, which Irish officials said as recently as Nov. 15 they didn’t need, marks the latest blow to an economy that more than doubled in the decade ending in 2006. The bursting of the real-estate bubble in 2008 plunged the country into a recession and brought its banks close to collapse. With Irish bond yields near a record high, policy makers are trying to keep the crisis from spreading.”
So far so good. But one could doubt that the EU lending process is too lax and thus might be threatening its effectiveness.
The major reason for this worry could be based on the fact that the granting of EU loans is not bound to certain measures which must be taken within the banking system – although these loans only have indirect effects (see the report “Wie funktioniert die Irland-Rettung?“ by German news channel ARD).
If the Euro-Nations would really like to make sure that these loans bring along the desired effects for Ireland, they should perhaps connect their lending to concessions made by the Peripheral.
Until now, one could be bothered as the lending process may give the impression of a “usual” credit application procedure – But it is not about a loan for a car, but about a loan for a whole economy which needs to function properly for the good of all Euro nations.