DUBLIN — Debt-struck Ireland formally applied Sunday for a massive EU-IMF loan to stem the flight of capital from its banks, joining Greece in a step unthinkable only a few years ago when Ireland was a booming Celtic Tiger and the economic envy of Europe.
European Union finance ministers quickly agreed to the bailout, saying it “is warranted to safeguard financial stability in the EU and euro area.”
The European Central Bank, which oversees monetary policy for the 16-nation eurozone, welcomed the agreement and confirmed that the International Monetary Fund would contribute financing. Sweden and Britain — not members of the euro currency — said they were willing to provide bilateral loans to Ireland too.
Irish Finance Minister Brian Lenihan spent much of the night talking to other eurozone financial chiefs about the complex terms and conditions of the emergency aid package taking shape.
Lenihan said Ireland needed less than $140 billion to use as a credit line for its state- backed banks, which are losing deposits and struggling to borrow funds on open markets. The money will come from the EU’s executive commission and a financial backstop set up by euro-zone nations earlier this year. There might also be additional bilateral loans from countries outside the euro-zone.
Ireland has been brought to the brink of bankruptcy by its fateful 2008 decision to insure its banks against all losses — a bill that is swelling beyond $69 billion and driving Ireland’s deficit into uncharted territory. This country of 4.5 million now faces at least four more years of deep budget cuts and tax hikes totaling at least $20.5 billion just to get its deficit — bloated this year to a European record of 32 percent of GDP — back to the eurozone’s limit of 3 percent by 2014.
The European Central Bank and other eurozone members had been pressing for Ireland — long struggling to come to grips with the true scale of its banking losses — to accept a bailout that would reassure investors the country won’t, and can’t, go bankrupt.
