Taoiseach Brian Cowen and Minister for Finance Brian Lenihan at a press conference in Government Buildings, Dublin, announcing the Government's request for an EU/IMF bailout of Ireland, Nov 21, 2010.

A week after Irish ministers had vehemently denied that talks were taking place on aid support, Ireland on Sunday joined Greece as the two countries of the 16-country Eurozone to agree during the global financial crisis to a bailout from Europe and the IMF (International Monetary Fund). The bailout is expected to total €80bn-€90bn and will include contributions from the UK and Sweden, according to reports.

At a press conference in Dublin, Taoiseach Brian Cowen said: “The European authorities have agreed to our request. A formal process of negotiation will now commence that will lead to the provision of assistance on the basis of programme to be negotiated by the government with the European Commission and the International Monetary Fund in liaison with the European Central Bank. I expect that agreement to be finalised shortly, within the next few weeks.”

The corporate tax rate of 12.5% is not an issue that will be discussed while the four year plan for adjustment  of the public finances in the period 2011-2014 to reduce the budget deficit to 3% of GDP by 2014, will be published on Tuesday. It will include provision for increased taxes and reduced spending but it's not clear if the adjustment in the Dec Budget will be greater than €6bn, which has been already flagged.

“Irish banks will become significantly smaller than they have been in the past, so that they can gradually be brought to stand on their own two feet once more,” Cowen said and added: "The agreement will include a fund for potential future capital needs of the banking sector. Put simply, the Irish banks will become significantly smaller than they have been in the past so that they can gradually be brought to stand on their own two feet once more.

The second key element of the agreement will be a programme to reduce our budget deficit.

Again, put simply, the Government has to increase our taxes and reduce our spending to levels we can afford.

In order to help Ireland complete these essential tasks, and to safeguard the stability of the euro area, we will receive funding which we will repay over time."

Minister for Finance Brian Lenihan stressed to the journalists, which included many from overseas, positive underlying aspects regarding the Irish economy: "There are underlying fundamentals in the Irish economy which are very, very sound. We have seen a 6% increase in exports year on year this year. It is estimated that our balance of payments will move into surplus next year and when you aggregate our public and private sectors we will be paying our own way in the wider world."

Central Bank governor Prof. Patrick Honohan said in a statement: "This evening’s announcements allow the course of economic and financial policy to be set on a more secure path. We can be reassured that the Irish banking system retains the support, not only of the Central Bank of Ireland, but of the European Institutions."

Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), issued the following statement Sunday on Ireland: “I welcome the response from the European Union and euro-area Member States to the Irish Government's request for financial assistance to safeguard financial stability.

“At the request of the Irish authorities, the IMF stands ready to join this effort, including through a multi-year loan. An IMF team, currently in Ireland for technical talks, will now begin to hold swift discussions on an economic program with the Irish authorities, the European Commission, and the European Central Bank.”

Besides approving the bailout request, the Cabinet also agreed the four-year plan which Cowen said would involve €10bn of cuts and €5bn of new taxes between now and 2014. The plan includes a €1 cut in the minimum wage, a 10% cut in social welfare over four years, as well as an agreement to reduce public sector numbers by 28,000. It is also expected to include provision for a property tax.

Brian Lenihan insisted that the Croke Park deal on public service reform would stand - - but could only guarantee it for 12 months.

Although the cuts of 28,000 public service jobs include 5,000 voluntary redundancies already sought by the HSEn (Health Service Executive), it compares with the 14,000 identified in the Croke Park agreement.

Some of these  pensions are lavish in particular for politicians and senior civil servants; they are linked to current pay and are often conveniently conflated with the old age pension.

Pensions now account for 12.9% of the total public sector Pay and Pension Pay bill, up from 9% in 2005. Overall, the pensions bill has increased from €1.35bn in 2005 to €2.23bn in 2010 representing a 65.6% increase over the period (pay in contrast rose by 10.8%).

Irish public sector pay/pensions to rise 16% in period 2005-2010; Pay up 11%: Pensions up 66%; Pensioner numbers rise 43% to 103,400

Irish taxpayer to provide €1bn bail-out of FÁS and university pension funds

Irish domestic banks account for 20% (up to €100bn) of the European Central Bank's (ECB) short-term facility which is part of the emergency liquidity funding the central bank put in place after the onset of the credit crunch.

The ECB plans to run down this emergency facility and it didn't want to be a long-term funder of Irish banks.

The banks have to provide collateral for ECB borrowing but €20bn was also provided by the Irish Central Bank since August, which signalled that the banks have problems both with collateral and rolling over their bond debt. On Friday, Allied Irish Banks disclosed that it had an outflow in 2010 of €13bn worth of deposits.

The EU/IMF support mechanism includes a €60bn fund backed by the EU budget; the European Financial Stability Facility (EFSF) amounting to to €440bn worth of guarantees and €250bn from the IMF.

More on EFSF (pdf)

Press Conference Part 2