Publications
Partners
Brussels - Europe may have acted quickly to save Ireland after dithering over Greece, but experts warned Monday of systemic risks to Portugal and others, underlining urgent calls to fix permanent rescue plans.
After international partners agreed to bail out Dublin, German deputy foreign minister Werner Hoyer said "it is even more important that we start on a permanent mechanism in Europe during the European summit in December."
He said that cash into Dublin's coffers, a mixture of IMF funding, bilateral loans amounting to some eight billion euros from Britain and Sweden and guarantees being negotiated by the EU, "can help to reassure the markets" and give Dublin the "psychological umbrella" it needs.
However, the euro and European stock markets faltered Monday, as investors looked beyond Dublin's woes.
"There seems to be a creeping realisation that this won't necessarily mark the end of the eurozone sovereign debt crisis," said sales trader Will Hedden at betting firm IG Index.
In late morning deals, the European single currency dipped to 1.3720 dollars, while the main European shares also trimmed earlier gains, and Dublin sank 0.87%.
"Portugal and Spain - and maybe even Italy - have very high debt burdens and may eventually have to use the European bailout fund to access finance," said research director Kathleen Brooks at trading site Forex.com.
"So, Ireland is just another chapter in the eurozone's sovereign debt crisis and is not the end of the story."
The European Union, European Central Bank and International Monetary Fund are striving to wrap up the Irish rescue "by the end of the month," said EU Economic Affairs Commissioner Olli Rehn.
But CMC Markets analyst Michael Hewson said the Irish crisis, centred on lenders that overstretched before the end of a construction boom, global recession and the rise of broader eurozone fears, "shines a stark light on the state of the European banking system and the integrity of the stress tests in the summer."
He was referring to successful EU health checks on banks' liquidity and capital reserves, and warned that "private bond holders" would likely face "some form of debt re-structuring."
"This is not just an Irish problem," he underlined. "It's a European one and one that needs dealing with."
Moody's credit rating agency warned on Monday to expect a heavy downgrade of Irish sovereign debt.
"A multi-notch downgrade... is now the most likely outcome," it said in an analyst note.
It suggested that a bailout worth up to €90bn would only involve "bank capital injections of €8 - €12bn," saying the remainder would take the form of a "back-stop facility to address the government's funding issues in the medium term."
As negotiations on conditions advanced, there was mounting anger in Dublin where furious protesters gathered outside government buildings late Sunday and the country's newspapers described it as "a nation's outrage."
The Green Party, the junior partner in the Irish coalition government, called Monday for a general election in January.
Back on the continent, the shape of that future mechanism remains unclear ahead of a summit in December, at which German Chancellor Angela Merkel wants banks to bear some of the anticipated future losses.
Finland's foreign minister Alexander Stubb said Helsinki had "gotten a promise" in exchange for dropping opposition to backing Irish aid for the EU to look at having bailed out states put up some kind of collateral to receive financial assistance in the future.
As observers start the betting on when Portugal might require assistance, Stubb reiterated: "We want guarantees... I think we have made halfway progress. We have gotten a promise that if there are further cases like this, we will look for guarantees."
"We need to think out of the box," he stressed.
