Ireland’s budget deficit soars as banks drain economy

| September 30, 2010 | 0 Comments
Ireland’s budget deficit soars as banks drain economy

Ireland’s central bank has said that Anglo Irish Bank, Allied Irish Bank and building society Irish Nationwide are all likely to need extra capital in order to stay afloat.

The central bank has previously warned that a potential rescue for troubled lender, Anglo Irish Bank, will cost up to €34.3 billion (£29 billion).

This has led the Government to promise a new four-year budget plan in November, in order to get the deficit below 3% of GDP by 2014 to keep within euro zone rules.

Investors are becoming increasingly nervous over Ireland’s financial health and earlier this week, Anglo Irish had its debt rating slashed by credit agency Moody’s.

Moody’s cut the bank’s senior unsecured debt by three notches to Baa3 – just one notch above junk status.

Irish Prime Minister, Brian Cowen, has already sought to reassure markets about Ireland’s economic difficulties.

However, the Irish Government has previously rejected claims that it could have difficulty raising funds and might have to turn to the EU rescue fund – which was established by European Governments and the International Monetary Fund after the Greek debt crisis earlier this year.

Ireland is now regarded as one of the weaker economies in the euro zone - it was one of the last in the region to emerge from recession.

The former “Celtic Tiger” economy experienced a property boom since the late 1990s, with multinationals arriving to take advantage of one of the lowest corporate tax rates in the euro zone.

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