DUBLIN, Ireland — Ireland relented Sunday and formally applied for a rescue package worth more than $100 billion after months of trying to survive its financial crisis with austerity measures and strict budgetary planning.
European Union officials, who had been pushing Ireland to accept help, quickly agreed to the request, committing a staggering amount of money to an ailing member for the second time in six months.
The total amount of the package was not announced, but several officials said it would be between $109 billion to $123 billion. Last spring, the EU disbursed $151 billion to Greece to save it from bankruptcy.
The loans were necessary in large part because of Ireland’s faltering banking system, underscoring the extent to which ailing banks remain a threat to recovery two years after the crisis rippled through economies and forced banks around the world to accept bailouts.
Ireland’s aid will come from a rescue mechanism worth roughly $1 trillion that was set up in May by the EU and the International Monetary Fund to help eurozone countries spiraling toward default.
Government officials hope that the large commitment of money will calm investors and keep the crisis from spreading to Portugal and even Spain. It was fear of a market panic and looming contagion that prompted European officials to press Ireland to accept aid early before its debt problem got out of control.
Some economists point out that the yields Greece must pay on its bonds are higher now than before its rescue, raising concerns that confidence in the fiscal health of troubled countries remains low.
Others, however, say that decisive action is what is needed to shift momentum toward recovery.
“This may be an inflection point, when we stop digging a hole and start creating the conditions for reversing where we have slipped to,” said Pat Cox, an economist and former president of the European Parliament.
Prime Minister Brian Cowen said at a news conference Sunday night that there would be two funds. One will back up the country’s failing banks, and another will allow Ireland to continue government operations without turning to the bond markets for help, something Dublin has said it could not afford. The package should allow Ireland to operate without funds from the markets for as long as three years.
The request for help was a turnabout for Ireland, which just last week was insisting it could manage its own finances. It does not view itself as being as profligate or irresponsible as Greece was in running up deficits and has been preparing a four-year budget plan filled with sharp cuts that is intended to reduce its deficit from 32 percent of gross domestic product to 3 percent.
The Irish government has been sinking further into debt since its 2008 decision to protect its banks from all losses. The banking system had become so weakened that it could not afford to wait any longer for help.
“This is a difficult time for the country,” Cowen said. “We have seen abnormal market conditions, so we have had to step out of the markets. We are determined to deal with the issues that have arisen and we will soon have our public finances in order.”
While a precise breakdown was not given, analysts and people involved in the talks said that about $20.6 billion is likely to go to backstop the banks. As much as $82.6 billion will go to fund Ireland’s annual budget deficit of $26.1 billion for the next three years.
The Irish Cabinet met all afternoon Sunday to formulate its request, and the group of eurozone finance ministers reached an agreement via a teleconference call in the evening.
The details and conditions of the package will be worked out among Irish and European officials in the coming days, but Ireland will not be required to raise its corporate tax rate of 12.5 percent, the lowest in Europe, something it had strongly resisted. Cowen said that a negotiation would begin with the IMF to discuss the specifics of the loan, although it was made clear that the interest rate would be lower than the 8 percent demanded by the market.
Since late Thursday, a team of officials from the European Commission and the IMF have been poring over reams of data, trying to determine what it would take to restore confidence in Ireland’s banking and financial system - both at home and abroad.
The quicker-than-expected action this weekend was prompted by fears of a bank run when the markets open this morning, people briefed on the discussions said.
As much as $34.4 billion has flown from large banks such as Allied Irish and Anglo Irish in the past months, and officials say that the pace had quickened in the past week.
Cowen said that there would be a contribution from the IMF as well as bilateral loans from Britain and Sweden.
Cowen said that the government’s budget plan would involve $20.6 billion of savings - $6.9 billion in tax increases and the rest in spending cuts. He said the plan would be published Wednesday and the budget issued on Dec. 7.
“The IMF will not micromanage the Irish economy,” said Cowen in response to questions that the government was being held hostage by the IMF. “And we are not ceding any policy sovereignty.”
Cowen also served as finance minister during the Irish boom earlier this decade. During the news conference, he was hit with a number of tough questions and accusations from journalists.
“I have taken every decision in the public interest,” he said, remaining calm. “But when circumstances changed, our policies had to as well.”
Cowen has an undependable three-vote majority that is expected to disappear by the spring as special elections are held to fill seats.
Reflecting the national mood, the Sunday Independent newspaper displayed the photos of Ireland’s 15 Cabinet ministers on its front page, expressed hope that the IMF would order the Irish political class to take huge cuts in positions, pay and benefits - and called for Cowen’s long dominant Fianna Fail party’s destruction at the next election.
“Slaughter them after Christmas,” the Sunday Independent’s lead editorial urged.
Banks have losses of about $96.3 billion, almost one half the country’s economic output, and a new set of stress tests will be imposed and the number of banks will be pared down, officials said.
So far, there have been few strikes. People have been conditioned to believe that the deficit must be cut and that Ireland, as a small open economy, has little choice but to pay its debts and take the tough policy choices.
But there is likely to be a limit to this patience as new spending cuts hit social services that by and large have remained protected. Irish unemployment is around 12 percent, and services like universal child benefits remain generous by European standards.
“There will be a lot of pain for the taxpayer, and a lot of people will lose their jobs,” said Michael Noonan, the chief economic spokesman for Fine Gael, the main opposition party.
“But the option was to be insolvent,” he added, “and if that is the option, it’s either the devil or the deep blue sea, so you might as well negotiate with the devil.” Information for this article was contributed from Brussels by Stephen Castle of The New York Times and by Shawn Pogatchnik, Raphael G. Satter and Gabriele Steinhauser of The Associated Press.
Front Section, Pages 1 on 11/22/2010