Ireland's international bailout boosted its bank stocks Monday, but outraged many hard-pressed taxpayers, who questioned why the government's pension reserves must be ravaged as part of a deal that burdens the whole country with the mistakes of a rich elite.
Shares in Ireland's banks rose sharply as markets were encouraged by the bailout's immediate focus on injecting €10 billion into the cash-strapped lenders out of a total of €67.5 billion ($89 billion) in loans.
But the Irish were shocked by a key condition for the rescue — that the government use €17.5 billion of its own cash and pension reserves to shore up its public finances, which have been overwhelmed by recession and exceptional costs of a runaway bank-bailout effort.
Opposition leaders and economists warned that the EU-IMF credit line's average interest rate of 5.8 percent would be too high to repay. They also questioned why senior bondholders of Ireland's struggling banks — chiefly other banks in Britain, Germany and the U.S. — still weren't being asked to bear some costs.
"This is not a rescue plan. It is the longest ransom note in history: Do what we tell you and you may, in time, get your country back," said Fintan O'Toole, a commentator and author who led a weekend protest by labor-union activists in central Dublin against the imminent bailout. He called the average interest rate being demanded "viciously extortionate."
The mood on Dublin's snow-covered streets was just as icy.
"We've been screwed by the IMF. It's going to be years and years until we're free of this," said Paul Flood, an unemployed 53-year-old Dubliner sheltering from the cold in a pub doorway. "We have to use our own pension reserve, and we're still being stung with a 5.8 percent interest rate. It sounds ridiculously high."
But the government's transport minister, Noel Dempsey, said the EU-IMF credit line "has taken us out of the situation where we're at the absolute mercy of the markets."
The high rate on the loans is also to discourage other countries from looking for cheap financing, said Patrick Honohan, the independent governor of the Central Bank of Ireland.
"It's not cheap funding, but it's cheaper, and it buys the government time to get its finances on track," he said.
The senior International Monetary Fund negotiator, Ajai Chopra, insisted that the agreement's redeployment of Irish pension funds was the most cost-efficient course to take.
Chopra said Ireland now was well positioned to reassure investors and eventually resume normal borrowing once interest rates being demanded on open markets fall.
"This is a very good deal for Ireland in current circumstances," said Chopra, who arrived in Dublin 12 days ago to oversee negotiation of a bailout deal that leaders of all 27 EU nations approved Sunday at an emergency Brussels meeting
Still, bond investors Monday showed few signs of reassurance and instead kept selling the debt of the euro-zone nations considered most at risk of default: Greece, Ireland, Portugal, Spain and Italy.
The yields on Ireland's 10-year bonds initially eased to 9.10 percent, reflecting some market relief, but then rose to 9.25 percent, a record high since the 1999 launch of the euro common currency.
Yields on 10-year bonds also rose for Portugal, Spain and Italy. The yield for Greece — highest in the world since its own EU-IMF bailout in May — dipped to 11.77 percent after it was granted more time to repay its own loans.
Chopra said it was smart to require Ireland to use its long-term pension money, which was earning around 1 percent interest, to reduce a bailout bill costing far more to finance.
Ireland's three publicly listed banks surged on the Irish Stock Exchange following Sunday's €85 billion agreement.
Honohan said Ireland would draw down €10 billion to boost the banks' reserves over the coming two months, while €25 billion more on standby for the banks might never be used at all.
"That money is a contingency fund to impress the markets, to say: Look, if things get really bad, that money is all there," Honohan said, adding he didn't expect Ireland to draw down the full loan on offer.
Honohan said the fund would allow the capital ratios of Irish banks to rise to 12 percent, better than the international standard of 8 percent.
The European Commission, meanwhile, approved the transfer of more toxic property-based loans to Ireland's year-old state "bad bank," the National Asset Management Agency. It has already taken charge of hundreds of Irish construction sites, office blocks and housing developments gone bust since the 2008 collapse of the property-driven boom.
Ireland faces at least a four-year fight to restore its deficits to the euro-zone limit of 3 percent of GDP from its currently postwar European record of 32 percent. Most of the bailout fund, €50 billion, is designed to cover deficit spending over that period as the government seeks to slash its way back into the black.
Prime Minister Brian Cowen last week unveiled a four-year plan to impose €10 billion in cuts and €5 billion in new taxes in this country of 4.5 million. The harshest cuts loom in the 2011 budget to be unveiled Dec. 7.
Crucially, the government estimates that the economy can manage only tepid growth in the midst of unprecedented austerity.
The European Commission is clearly less convinced. It offered Ireland a one-year extension to 2015 to reduce its deficit back within euro-zone limits, and published economic projections that are less optimistic than Ireland's own.
The commission expects Irish GDP to grow 0.9 percent next year and 1.9 percent in 2012. Ireland's deficit-fighting plan is based on expectations of 1.75 percent and 3.25 percent growth in those years.
Chopra and Honohan say IMF and EU experts in coming weeks will subject each Irish bank to stress tests including worst-case scenarios to determine how much cash they need.
Ireland has already committed at least €45 billion to bailing out five banks, a bill the government was forced to concede it could no longer finance.
Honohan said deposits in one of those banks — Anglo Irish — would be moved to a separate entity over the next few weeks, and that the bank's name will disappear. The bank's loan book will be wound down over several years, the central bank said.
Shares in Irish Life & Permanent — the only bank yet to receive rescue cash — rocketed 56 percent off its record low from Friday. The bank, a specialist in insurance and residential mortgages, said Monday it doesn't require any state aid.
Bank of Ireland jumped 22 percent as it announced plans to try to raise €2.2 billion to avoid resorting to the latest bailout. Analysts expect Bank of Ireland to require state help to raise the cash, but fears are ebbing that the government would increase its 36 percent stake into majority ownership.
Allied Irish Banks rose 10 percent, reflecting its humbled status as much more reliant on bailout funds and likely to face virtual nationalization soon.
David McWilliams, a former Irish Central Bank economist who has argued for foreign bondholders to share losses, said that rather than shield public finances from the banking sector, the bailout soldered them together.
"Of course the bank shares will rise," he said of Monday's sharp gains. "We've just put 10 billion in their pocket."