The financial market has continued to put Ireland under severe pressure after its four-year austerity plan failed to bring hope to investors.
The cost of insuring Irish sovereign debt against default has mounted, forcing traders to demand large premiums on Irish bonds. And this in turn has caused an alarming 'buyers' strike' at this very point in the Irish economy. While the government is trying hard to convince investors that Ireland will not be the next Greece, the gush in the sovereign debt insurance bonds seems to prove otherwise.
According to the EU Economic and Monetary Affairs Commissioner Olli Rehn, Ireland is in need of some immediate rescue plan that should include spending curtailments and tax rises by as much as €6 billion in 2011. Economists await some changes to happen that would change the existing financial dynamics of Ireland.
At the moment, Ireland is on the threshold of insolvency. At least the bailout bill of €85 billion indicates so. The bailout bill is an implication that every cent of income tax that a taxpayer pays for the next two to three years will go into compensating for the Anglo losses, each cent for the following two years will go into paying the Allied Irish Banks, and finally every cent for the next one and a half years into others.
Anticipating the chances of being excluded from the bond markets, the Irish government has built up large funds a few months ago, in order to avoid the need for an immediate financial rescue and testify that Ireland is still liquid. However, the funds are to last only till the mid 2011. The situation is expected to worsen if Ireland fails to raise and recover money from its bond market in 2011.
Another significant aspect that has kept Ireland from going bankrupt, as of now, is the intervention of the European Central Bank (ECB). A permanent team of ECB 'observers' has been residing in the Department of Finance since September to closely monitor the Irish economy. To avert another Greek financial tragedy, the ECB has decided to fund the Irish banks in order to help keep them going until the government settles its next course of action.
The effort of the ECB is expected to prevent a worse financial crisis for Ireland. Nonetheless, Ireland will still have to bear the atrocities of severe austerity in the coming few years. And possibly, the devaluation too will not be much help this time.
On the face of it, the Irish business environment might look all right, but brains are likely to get drained out as the youth prefer to leave their homeland to evade the economic muddle.