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EU ministers tonight spelt out the terms of Ireland’s €85bn international financial rescue package, and revealed the Dublin government will have to raid its national pension fund and other cash reserves for €17.5bn as a condition of the deal to bail out its banks and debt-laden economy.

The unexpected contribution from Ireland was demanded at a hastily arranged meeting of the eurozone’s finance ministers, who were desperate to secure a deal before the markets open tomorrow.

The package from the EU and International Monetary Fund includes €67.5bn of external loans. €10bn will go straight to the crippled banks, and €25bn is earmarked for bank support in the future. The remaining €50bn will be used to shore up the public finances and allow the government to keep making welfare payments and cover other expenses such as health and education.

The agreement was outlined after six hours of parallel emergency meetings in Brussels of all 27 EU finance ministers and of the 16 countries using the single currency. New proposals for a permanent crisis mechanism to shore up the euro from 2013, when the current schemes run out, were also outlined.

The gravity of the situation was such that the chancellor, George Osborne, attended the eurozone meeting, even though the UK is not in the single currency. The UK is to contribute an estimated €7bn, some €3.8bn in a direct loan for the banks.

Osborne said: “There is a loan going from Britain to Ireland of just over £3bn. Of course, Britain is also part of the EU and part of the IMF, so we stand behind their loans as well. It is in Britain’s national interest. It is money we fully expect to get back, and we think it will help Ireland get on a fully stable path back to growth.”

He also negotiated that the UK would not be part of any future eurozone bailout schemes after 2013.

Within minutes of the announcement, Ireland’s embattled prime minster, Brian Cowen, was facing questions about whether his country could afford the interest on the loans, which will average 5.8%, as the repayments will amount to 20% of annual tax revenue. But he was unrepentant. “Can Ireland do without this package? The answer to that is no,” he told reporters last night.

“If we don’t have this programme we would have to go back to the market, which has prohibitive rates,” he said.

Ireland’s borrowing costs have shot through 9% and anxiety about the terms of Ireland’s bail-out package has reverberated through the eurozone. There have been sharp rises in the borrowing costs of Portugal and Spain, sparking fears that they too will need assistance to avoid a break-up of the eurozone.

Joan Burton, of the Irish Labour party, said that the Europeans and IMF had “played better poker” than Ireland. She claimed that the Irish government had gambled away assets such as the pension reserve fund in the discussions. “The EU and IMF have us where they want us,” she said.

EU leaders wanted to demonstrate to the markets that they could contain the contagion in the eurozone, and for the first time today called for the financial markets to bear some of the losses in future European sovereign debt crises.

Cowen made it clear that the authorities were trying to stop another crisis that would have been caused if bond holders had been forced to take losses. Such a move, he said, could have endangered the “entire financial system”.

Dublin insisted the interest rates on the loans had to be less than 6%, even though this is more than the 5.2% paid by Greece when it was bailed out in April. While agreeing the Irish deal, the leaders of Germany, France, and the European Central Bank issued demands that the private sector should shoulder some of the losses in future bailouts after 2013.

This issue of creditor “haircuts”, or investor losses, has been highly contentious over the past month.

Chancellor Angela Merkel of Germany, President Nicolas Sarkozy of France, and the ECB chief, Jean-Claude Trichet, conferred over the weekend on the plan for a permanent euro rescue system. According to German officials today, Berlin has scaled back its demands after running into resistance from the French and the ECB. The paper tabled today, to be discussed at an EU summit next month, rowed back from a blanket insistence on creditor haircuts, instead saying the investor losses should be treated on a case by case basis. Cost of the bailout

– The €85bn bailout is made up of €67.5bn from the European Union, the International Monetary Fund, and the states of Denmark, Sweden and the UK. Another €17.5bn comes from Ireland’s cash reserves and its national pension reserve fund.

– Of this, €35bn is set aside to shore up the Irish banking system. €10bn will be used immediately, and the other €25bn is a contingency fund.

– Of the €67.5bn, the IMF is putting up €22.5bn.

– The two European stability funds are also putting in €22.5bn each. The UK contributes to one of these funds.

– The UK’s contribution is €3.8bn as a direct loan to the Irish banks. The interest rate has yet to be announced, but will be about 6%. The UK taxpayer will contribute about the same amount again through its membership of the IMF and EU bailout schemes.

– The plan allows Ireland to delay the deadline set for reducing its budget deficit to 3% of GDP until 2015, a year longer than previously. The deficit is currently 32%.

– The interest rate on all the loans, if they were all held for the maximum term, averages 5.8%. The bailout offered to Greece earlier this year averaged some 5.2%. The bond market had been demanding 9% to lend cash to Ireland in recent weeks.

– The Irish government has said that interest payments on its state debt will total more than 20% of tax revenues in 2014. Ireland bailout IMF European debt crisis Ireland European Union France Germany Greece Angela Merkel Nicolas Sarkozy George Osborne Ian Traynor Henry McDonald Jill Treanor guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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Dublin, Ireland, United Kingdom (AHN) – Ireland’s debt crisis and austerity plan has fueled uncertainty among traders, causing the euro to continue its slide in value against the dollar.

The European Union’s common currency is now down to two-month lows at $1.3314; it has fallen by more than three cents this week alone. News of the proposed bailout had caused the euro to rise in trading on Monday; however, it dropped again in trading on Tuesday and has continued to drop.

Ireland’s four-year austerity plan relies on a combination of spending cuts and tax increases to save $20 billion (15 billion euros) and reduce that nation’s government deficit.

However, currency traders are skeptical, fearing that the Irish government is too optimistic and that the plan will not work. In addition, traders also fear that the debt crisis will spread to other nations within the euro zone that have high government deficits.

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Dublin, Ireland (AHN) – Irish Prime Minister Brian Cowen on Monday said that he was waiting for the Parliament to pass the significant budget at a time when his country is facing a debt crisis, adding that he doesn’t expect general elections before March of next year.

The Irish leader said that the budgetary process might take weeks to be completed, then only he could formally dissolve parliament and announce an election date. The debt-ridden country is due to vote on the crucial $9 billion budget plant on December 7.

Speaking at a press conference, Cowen said that he was seeking the dissolution of parliament after the budgetary process with the enactment of the necessary legislation in the New Year.

“I’m saying that it is imperative for this country that the budget is passed. It’s very important for people to understand that any further delay in this matter in fact weakens this country’s position,” the Irish leader added.

Weeks after claiming that Ireland did not need help, the government finally bowed down on Sunday and called the IMF and EU to grant them financial assistance.

The PM’s decision about dissolution and elections came on Monday when Green Party leader John Gormley, with six seats in Parliament, urged him to announce election dates, claiming that Irish people had been misled and betrayed, hence, they now need to come out of political uncertainty.

However, Gromley vowed to back government in getting the budged approved through parliament.

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7.21pm: Cowen says:

It is very important for people to understand that…any further delay in this matter would in fact weaken our country’s position.

7.19pm: He is asked how betrayed he feels by the Green party, who today called for an immediate election. “That [betrayed] is not a word in my lexicon,” he replies.

It has always been my intention to ensure we get the job done in the interests of the party.

He reiterates that there will be a dissolution of parliament in time.

Cowen claims he does have the confidence of his coalition partners.

7.15pm: Now he’s taking questions. Cowen says he has the “full support” of his colleagues. The “most important thing for this country” is passing the budget on 7 December.

7.14pm: Parliament will be dissolved in the New Year. Statement over, he has not resigned.

7.13pm: Cowen is up. He says there are times that the national imperative outweighs political concerns. The government should continue to discharge its operations, he says. There will be a time for political accountability but it should not interfere with attempts to facilitate the passing of the agreed measures.

7.09pm: Still waiting for Cowen to start speaking. Apparently there is a problem with the microphones at the lectern. It never rains, it pours…..

It seems that sentiment is now that he won’t quit.

Henry McDonald says:

“Respected RTE political reporter Brian Downing claims that Cowen will avoid standing down tonight. He hears that Fiann Fail ministers believe they have a duty to push through a budget while the IMF and ECB are in Dublin.

7.00pm: The Irish Independent’s political correspondent, Aine Kerr, has tweeted :

Holding statement expected from Taoiseach Brian Cowen along lines of needing to pass Budget. #bailout

If correct, that’s unlikely to satisfy his critics.

6.55pm: Henry McDonald says the speculation is that the Taoiseach is about to step down “but with Cowen you never know”.

6.52pm: Ahead of Cowen’s statment you can read our latest lead story on the crisis . Henry McDonald writes:

With the International Monetary Fund and the European Central Bank delegations in Dublin monitoring the situation closely, pressure mounted on Brian Cowen to leave his post as taoiseach as his Green coalition partners called for a January election and independent MPs threatened to vote against next month’s crucial budget. Such a move could block its passage through parliament, paralysing the government. Sources in the ruling Fianna Fáil party told the Guardian that backbenchers wanted Cowen removed.

6.43pm: Good evening, Haroon here. It’s just been announced that Cowen is to make a statement at 7pm . Will this be the moment he caves in to pressure to resign? I’ll be following it live here.

6.19pm: This crisis looks set to run into the night, so here’s a round-up of today’s events.

– Ireland’s decision to seek a financial rescue package from the European Union and the IMF has sparked a political firestorm that could force the resignation of Taoiseach Brian Cowen – Cowen is meeting with government ministers tonight to discuss the crisis (see 5.33pm ) – The Irish Green party, the junior partner in Cowen’s government, have demanded a general election in January, making a vote inevitable (see 11.57am ) – Two independent members of the Irish parliament have said they will not support the budget due to be presented in December 7 (see 2.32pm and 3.10pm ) – George Osborne has said Britain will support its “friend in need”, possibly with a bilateral loan. (see 4.17pm to 5.23pm ) Some MPs are opposed to bailing out the euro, but it appears the UK’s support will be approved if needed – The cost of insuring Irish, Portugese, Spanish and Greek government debt rose amid the tension, as City investors anticipated a new phase of the financial crisis (see 3.35pm )

So with that, I’m going to hand over to my colleague Haroon Siddique . Thanks for reading, and for all the excellent comments so far.

6.01pm: Sources within Fianna Fail have told The Guardian tonight that they are already considering 16 December as the date of a general election if Brian Cowen dissolves the Dail tomorrow.

He is coming under sustained pressure tonight to hand in his resignation to President Mary McAleese tomorrow morning.

Henry McDonald also reports that the government’s four year economic plan is scheduled to be published by the Department of Finance on Wednesday — assuming there is still a government stil in place.

Reuters is also reporting that the opposition Labour party has said there is no way they could form a government with Fianna Fail, but that they are confident they could form a coalition with Fianna Gael.

5.51pm: Credit rating agendy Moody’s revealed this afternoon that it is preparing to hit Ireland with a substancial downgrade.

Moody’s announced that the bailout was likely to make Irish sovereign debt riskier, as it would transfer liabilities from its banking sector onto the state:

A multi-notch downgrade, leaving the rating of the Republic still within the investment-grade category, is now the most likely outcome of our review of the sovereign credit.

You could argue that Moody’s is a little late to the party. It currently gives Ireland an Aa2 rating, two rungs down from the Triple-A gold standard, and could drop it seven notches before putting the country into junk status.

This feels like a good time to round up the action from the City, where the FTSE 100 closed 52 points lower at 5680 — blowing something of a raspberry at the €90bn Irish bailout.

Markets also closed lower in Spain (-2.7%), Portugal (-1.2%), Italy (-1.9%) and Ireland itself (-1.4%). Quite an underwhelming response, all in all.

The euro has also suffered further losses, falling to $1.3588 against the dollar. That’s a fall of 2 cents from its early high.

5.46pm: Benedict Brogan of the Daily Telegraph says that George Osborne has “put his cheque book away, and got out the veto card” , having watched the discussions about Ireland.

Brogan points to questions from two Conservative MPs, David Ruffley and Bernard Jenkin, who asked whether Osborne would block a new EU Treaty if it did not exempt the UK from the permanent EU bailout mechanism that will be debated next month .

Osborne’s response — “We would only accept a Treaty change if it creates a bail-out mechanism which we are not part of. Of course, a treaty change requires unanimity” — is a clear sign that the UK will push to be kept out of future eurozone bailouts, Brogan says.

5.33pm: The political crisis in Dublin has been gathering steam in the last hour, while Osborne was talking in the House of Commons. Brian Cowen ‘s grip on the prime minister’s job may be slipping.

Henry McDonald reports that Fianna Fail ministers are holding crisis talks tonight as pressure builds on Brian Cowen to resign. Three of his back benchers are now calling for him to stand down as Taoiseach.

The fiscal crisis has rapidly evolved into a political crisis for Cowen’s coalition.

5.23pm: That’s the end of George Osborne’s statement on the Irish rescue package. Plenty of interest from MPs – particularly from the eurosceptic wing of the Conservative Party. Osborne did not reveal too much new information — it was interesting that he cited Brian Cowen’s prediction that the total package could reach €100bn.

A bilateral loan is clearly still on the table — with Osborne suggesting that this is a good way for Britain to help its close friend and neighbour without getting dragged too deeply into the European side of the rescue.

Both sides of the House manage to agree that Ireland should be supported, while disagreeing about the political lessons of its plight. Rachel Reeves , Labour MP for Leeds West, argued that it showed the folly of making deep austerity cuts when the global economy is fragile.

Osborne, though, insisted that the crisis backs up his drive to cut Britain’s deficit.

5.17pm: MPs are keen to know what exchange rate a bilateral loan will be set at — an important issue, given that Britain’s own borrowing costs are fluid, and have been generally falling throughout 2010.

Osborne will not speculate, but suggests that the bilateral loan rate will not be punitive:

We are not seeking to make a buck out of this. We are looking to help a friend in need.

5.11pm: Can Britain really risk borrowing more money, just to lend it to Ireland, asks Nadhim Zahawi, MP for Stratford-on-Avon.

Surely, says Zahawi, the priority of the coalition government should be to keep the UK out of the “financial danger zone”, given the nerves in the financial markets

Osborne responds that:

Sovereign debt concerns are very, very heightened at the moment, that is a statement of the obvious.

Osborne has also told parliament that the bilateral loan would not add to the UK deficit, as Britain will receive an asset in return for the loan.

“My understanding is that, of course, it will add to borrowing but we will get an asset in return – in other words, an Irish commitment to pay back the loan, and it will not add to the deficit,” Osborne said.

5.04pm: Ben Bradshaw , Labour MP for Exeter, asks Osborne whether he has any regrets at all urging the public to “Look and learn from across the Irish Sea” in that 2006 article in The Times.

It’s a case of “Non, je ne regrette rien” from Osborne (although he doesn’t actually pay homage to Norman Lamont by saying it). Instead, he responds that:

There were plenty of Labour ministers who stood here praising what Ireland was doing to make itself competitive. The tragedy is that they did so much to make themselves competitive, but did not regulate their banking sector.

We in the UK know the cost of that.

4.56pm: Douglas Carswell , Conservative MP for Clacton and a leading eurosceptic on the government backbenches, warns that Britain now finds itself deeply intwined in the eurozone. He asks Osborne whether he agrees that the UK is “a member of the eurozone as a debt union”, thanks to the Lisbon Treaty.

Osborne responds that there are several commitments which the UK has entered into, “which I didn’t support at the time.”

The chancellor also rejects a call from another MP that Ireland should be forced to raise its 12.5% corporation tax. It would not be in Ireland’s interest to force through tax changes that “lead to an immediate flight of international businesses.”

4.48pm: There does not appear to be much enthusiasm in the House for Britain’s involvement in the Irish rescue, but also little suggestion that it will be blocked.

Alan Beith , Liberal Democrat MP for Berwick Upon Tweed, warns that the public were already angry about having to bailing out mismanaged UK banks two years ago:

They will be even angrier about having to bail out even more mismanaged Irish banks

Chris Heaton-Harris , Conservative MP for Daventry, asks for reassurance that Britain will only lend Ireland money if we are confident it can be repaid.

“The answer is yes,” Osborne responds.

Another MP asks whether, when Osborne says a British bilateral loan would be “billions, not tens of billions”, that is on top of our other contributions through the EFSM and the IMF?

Osborne says the final details have not been agreed, but explains that the total UK contribution will be in single-digits of billions.

4.44pm: David Blunkett , Labour MP for Sheffield Brightside and Hillsborough, says that his constituents will not understand why another £100m cannot be added to the Irish bailout to help Sheffield Forgemasters (the engineering firm who saw an £80m loan cancelled in June )

Osborne indicates that the two cases are rather different.

4.40pm: Alistair Darling , the former chancellor, defends his decision to sign Britain up to the EFSM. He argues that the possible bilateral loan underlines that it is “in Britain’s interest to help sort out the problems of Ireland.”

Darling also wants to know how much of the rescue package will be used to recapitalise Ireland’s banks.

Osborne indicates that the package will mean that both Ireland and its banking sector can avoid seeking funding in the wholesale markets for some time, but full details are not yet available.

4.38pm: Conservative MP Andrew Tyrie says that the public will be “shocked” to hear that the UK is helping to bail out a member of the eurozone. Can he guarantee that Britain will not provide any more funds to the €60bn European Financial Stability Mechanism?

Osborne responds that he is not in favour of topping up the EFSM to “make good” any funds committed to Ireland.

4.32pm: Osborne explains that any bilateral loan will be in the “billions, not the tens of billions”.

He also explains that any support provided from the €60bn EFSM fund (which Darling agreed to support back in May), would only be provided if Ireland defaulted on its debts. A bilateral loan, though, would be a full injection of funds into Ireland. No indication on what interest rate we would set.

Osborne also acknowledged that Darling had been keen to keep Britain out of the €440bn EFSF facility. The chancellor might not like our involvement in the €60bn mechanism, but he is not planning to pull us out of it.

Osborne also tried to dampen any debate on the single currency:

I am dealing with the situation as I find it today. We can have a debate about the euro at another time.

4.29pm: Alan Johnson, the shadow chancellor, now responds. He indicates that Labour will provide its support to the rescue package — but wants to know why a bilateral loan is necessary, and what interest rate any loan will be pegged at.

Johnson also flags up Osborne’s notorious newspaper article from 2006, hailing the Irish economic recovery (see 10.10am ).

4.27pm: Osborne also says that the UK is still considering offering a bilateral loan to Ireland. He explains that this is very much in Britain’s national interest – given that Ireland takes 5% of British exports, which is more than Brazil, Russia, India and China combined.

A bilateral loan will “recognise the deep connection between our two countries”, Osborne says.

In conclusion, he says it is a “tragedy” that Ireland is in its current predicament, having done so much to improve its economy in recent years, and again describes Ireland as a “friend in need”.

4.21pm: Osborne explains that around one-third of the rescue package will come from the IMF, and the other two-thirds will come from the European Union.

He also tells MPs that Brian Cowen has indicated that the final rescue bill will be no more than €100bn.

The European funding will come from two sources, the €440bn European Financial Stabilisation Fund (financed by members of the eurozone), and the €60bn European Financial Stabilisation Mechanism – which all 27 members of the EU have subscribed to.

Osborne reveals that he has opposed Alistair Darling ‘s decision to sign up to the EFSM “two days before we took office”.

“The EU wil lend money to Ireland on behalf of all 27 members, and the UK will pay its share.”

4.17pm: George Osborne has just stood up in parliament to give the statement on financial support for Ireland.

The chancllor starts by explaining that it is in the UK’s national interest for Ireland to have a stable economy and banking system:

The current Ireland situation had become unsustainable

Osborne also reveals that the UK government has been working behind the scenes with the G20, the International Monetary Fund, the European Union and the Irish government in recent weeks – in case Ireland had to apply for financial help.

4.13pm: Support for the Green Party’s position in the Republic has come from their counterparts across the border in Northern Ireland, Henry McDonald reports.

Speaking after the Irish Green Party called for a general election in January 2010 (see 11.57am ) , Green leader in the north Steven Agnew said their southern counterparts had put the national interest ahead of party.

“Since entering government in Ireland in 2007, The Green Party has worked consistently to fix and reform the economy while building in sustainability measures to protect the country in the future.

The Green Party is acting responsibly by ensuring that there will be a budget agreement before any elections,” Agnew said.

He added: “I think our own Assembly in Northern Ireland should take heed of this and ensure that it too agrees a four year-budget before the elections and put the needs of Northern Ireland ahead of party political interests.”

3.48pm: We’re expecting that George Osborne will give a statement to the House of Commons about the Irish rescue package in about 30 minutes (Parliament is currently discussing the recent Nato Summit).

It will be fascinating to see how many MPs voice their opposition to Britain’s involvement in the deal, following the leads of Conservative MP Douglas Carswell (8.40am) and Labour MP John Mann (1.25pm).

3.35pm: Here’s a scary thing – the credit default swap on Greek government debt just jumped over the 1,000 basis point mark – a 37bp rise on the day.

That means that bond-holders now have to pay more than €1m to insure €10m of Greece’s debt for five years – implying a serious risk of default or restructuring.

As I mentioned earlier, Portugese CDS are also up around 40bps, at 460bp. Irish government debt is also being hit, with the five-year CDS rising 25 basis points at 530bp. Not what you’d hope for, if you’d just agreed to seek a landmark bailout that is being billed as the saviour of the eurozone.

Spanish debt is also suddenly looking riskier – up 20 basis points at 281bp.

The trigger for these sudden rises is the politicial uncertainty in Ireland, and the alarming prospect for the City that the Irish budget might not be approved. That could send then entire €90bn rescue deal crashing down, traders fear, dealing a potential death blow to the Irish banking sector – sending shockwaves across the European economy. Live blog – market down

We aren’t at that stage yet, of course. With the FTSE 100 now 62 points lower at 5670, there is disappointment in the market, but no panic. Yet.

3.19pm: Ireland’s main opposition party is now questioning whether the Irish government can pass its cost-cutting budget next month.

Michael Noonan, Fine Gael’s finance spokesman, is questioning whether the government will last until December 7 — especially now that two independent MPs have withdrawn their support (see 2.32pm):

It seems to me that as things progress, it’s going to be difficult for the government to continue as far as budget day and maybe the best thing would be an immediate election.

But has the political pressure mounts, the scene is eerily quiet in the Irish parliament. As Irish radio commentator John McGuirk noted this morning – while the UK Parliament will today debate the financial situation in Ireland the Dail is closed until Tuesday….the highest paid politicians in Europe don’t do Mondays!

Also…the Irish Green Party has just clarified to The Guardian that it will support both Brian Lenihan’s four year economic plan and the budget on 7 December. This is despite calling for a general election for the second half of January 20111.

The focus now shifts, the Greens say, to the Independent members of the Dail as to whether they will support a budget in the parliament or leave Ireland in further fiscal chaos.

2.44pm: Portugal’s prime minister, Jose Socrates, has hit the airwaves to insist that his country does not need a bailout.

Socrates told Portuguese radio station TSF that he was confident that the Irish rescue package would prevent contagion spreading across the eurozone.

The country does not need any help…What the country needs is to do what is necessary, to approve the budget, and to continue in its efforts.

As reported earlier (1.47pm), the financial markets do not share Socrates’ confidence – with the cost of insuring Portugese government debt rising by around 9% today.

2.32pm: Ireland’s crucial December budget appears to be on a knife-edge this afternoon, after two independent members of parliament threatened to withdraw their support.

The move, by two TDs who provide crucial support to Cowen’s coalition government, means that an early general election now looks certain, Henry McDonald believes:

Independent Kerry TD Jackie Healy-Rae has issued a statement saying he can “no longer honour his word” to the Fianna Fáil-led Government and the time has come to go to the people.

He said all political parties should have the chance to offer their remedies for the situation, giving the Irish people to cast their own judgment.

Meanwhile, Independent deputy Michael Lowry has said Fine Gael and Labour should now sit down with the Finance Minister Brian Lenihan to reach agreement on budgetary targets, because “they are certain to be in government”, possibly before the end of January.

He believes it is time for the two main opposition parties to show that they are “ready to take power”, and they can exercise “responsible leadership”.

Lowry’s point is highly relevant given that a new coalition comprised of Fine Gael and Labour would face the same fiscal crisis as the current administration.

2.20pm: What would have happened if last night’s bailout had not been agreed?

Larry Elliott, our economics editor, argues in this video that we would have been facing a rerun of the collapse of Lehman Brothers .

2.11pm: There have been scuffles outside the government buildings in Dublin. Here’s a line from the Press Association:

About 50 protesters, some from Sinn Fein, forced their way into a security hut at the front gates of Government Buildings. Among the demonstrators was one of the party’s TDs, Aengus O Snodaigh.

1.47pm: The Irish bailout has failed. That’s the stark verdict from Zerohedge , the financial blog, after the euro slipped into negative territory today.

Having rallied early this morning to a high of $1.3785, the European single currency is now down to $1.362. Zerohedge’s verdict is clear: “The market now believes the Irish bailout has failed,” it said.

Looking around the market, the FTSE 100 is now down by 45 points at 5688. RBS and Lloyds are the biggest fallers, reflecting their exposure to the Ireland banking sector

Government debt is also being hit, particularly that of Portugal. The cost of insuring Portugese debt has now risen – with five-year credit default swap contracts 40 basis points wider at 452bp (see 10.33am for more detail).

Listening to traders, the new political uncertainty in Ireland appears to have alarmed some in the City. Reuters are quoting an unnamed independent government MP who has said he is unlikely to support next month’s budget.

The ruling coalition only has a majority of three at present. If it loses the budget vote, the whole IMF/EU rescue package could unravel.

1.25pm: A reminder that George Osborne will be making a statement to the House of Commons this afternoon about the Irish rescue package, probably around 4.20pm.

We already knew that Tory eurosceptics will give Osborne a hard time over the deal. But one Labour MP, John Mann, has now said he will oppose the rescue plan if it comes to a vote:

What George Osborne has chosen to do is use money from the average taxpayer to bail out the bankers – including British bankers – yet again. What is extraordinary is the way Osborne has dealt with this bail-out. Ireland has been allowed to keep its rock-bottom corporation tax rate, but again at the expense of the British taxpayer, with firms like Northern Foods relocating to Dublin just last week.

(that’s via Andrew Sparrow on the Guardian Politics live blog ).

1.23pm: Ireland appears to be moving rapidly onto an election footing, following the call for an early general election (see 11.57am ).

The political team at state broadcaster RTE are describing the move as “seismic”. With a January election seemingly inevitable, the campaign has effectively already begun.

Worth remembering, though, that we don’t know the terms of the IMF/EU package. Or, crucially, the details of the four-year fiscal consolidation which will be announced on Wednesday.

12.47pm: The Irish political crisis is escalating. We are hearing that certain backbenchers in the Fianna Fail party are planning to force prime minister Brian Cowen to quit within weeks – once the €90bn rescue deal has been finalised and next month’s budget has been pushed through.

Henry McDonald , our Ireland correspondent, reports that Cowen’s political fate may be sealed . Elements of Fianna Fail are determined to make the Taoiseach carry the blame for the humiliation of the IMF bailout, and the mistakes that led to the crisis.

This just in from Henry:

Pressure is mounting on Brian Cowen to step down as Ireland’s prime minister, sources inside the ruling Fiann Fail party have told The Guardian.

They said backbenchers want Cowen out as Taoiseach shortly after the country’s cost-cutting budget on 7 December.

“We cannot go into a general election with Brian as leader after the events of last week. His credibility is shattered,” one senior Fianna Fail source said today.

The Green Party’s decision to demand a general election in early January appears to make Cowen’s position even more precarious.

Looking at the financial markets, this bout of political infighting has hit sentiment. The FTSE 100 is now down 29 points at 5703 (-0.51%). The two banks with the biggest exposure to Ireland, RBS and Lloyds, are the biggest fallers. RBS is down 3.5% at 40.2p, while Lloyds are off 2.67% at 64p.

11.57am: The Irish government appears to be moving towards break-up. In the last few minutes Ireland’s Green Party , the junior partner in Brian Cowen’s coalition government, announced that it has asked the Taoiseach to call a general election in the second half of January.

In a remarkably hard-hitting statement that leaves Cowen’s government reeling on the ropes, the Green Party said that the current administration should be dissolved – once the IMF/EU rescue deal is concluded.

My colleague Lisa O’Carroll points out that, given Cowen’s wafer-thin majority in the Irish parliament, a general election now appears inevitable – as the Greens can simply walk away from the government if their demand for a vote in the new year is not met.

Here’s the full text of the Green Party statement, from leader John Gormley:

The past week has been a traumatic one for the Irish electorate. People feel misled and betrayed.

The Green Party believes three things must be done in the coming two months to safeguard the future prosperity and independence of the Irish people.

These are: – Producing a credible four-year plan to show we can make our Budgets balance by 2014. – Delivering a Budget for 2011. – Securing funding support from the EU and IMF which will respect vital Irish interests and restore stability to the Euro area.

We have always said that our involvement in government would only continue as long as it was for the benefit of the Irish people. Leaving the country without a government while these matters are unresolved would be very damaging and would breach our duty of care.

But we have now reached a point where the Irish people need political certainty to take them beyond the coming two months. So, we believe it is time to fix a date for a general election in the second half of January 2011.

We made our decision last Saturday after a long series of meetings.

Since entering government in June 2007, we in the Green Party have worked to fix and reform the economy. It has been difficult. We have taken tough decisions and put the national interest first.

We cannot go back and reverse the property bubble and the reckless banking which we consistently opposed. Nor can we control the market turmoil which has afflicted the Euro area.

We have taken extensive measures to recognise the losses and stabilise our banking system. However, it is now clear we need further measures to give the market confidence about our banks and public finances.

We are now discussing ways of restoring stability to the banking system with the support of our European colleagues and the IMF. We have to ensure that the terms of any such support are in the interests of the Irish people and the wider Euro area. The timeframe for achieving a four-year plan, Budget 2011 and a good outcome from IMF/EU talks is very short. These matters must at this stage take priority ahead of everything else.

Despite our difficulties and disappointments, I believe we can get out of this situation. We must all work together to ensure the best outcome for everyone.

11.45am: Several European countries have welcomed Ireland’s decision to seek financial help, with Spain predicting that it will help to save the euro.

Spanish foreign minister Trinidad Jimenez said it was “good news”, and insisted that Spain was also addressing its own financial problems:

The euro will stabilise thanks to the help of all European Union nations

Sweden , which like Britain is not part of the eurozone, is also planning its own bilateral loan to Ireland. Finance minister Anders Borg explained this morning that Sweden is concerned that the debt crisis will spread across the European economy unless it is contained now.

Borg said the loan would probably be between 5 and 10 billion crowns (£456m-£912m).

11.23am: Looking beyond Ireland, Portugal is about to be hit by a general strike – possibly the biggest in the country’s history – in protest at its austerity cutbacks.

Portugal’s two biggest trade unions have called a mass walkout for Wednesday, in protest at government measures aimed at reducing the country’s deficit. Many smaller unions have backed the strike, and it seems likely that hundreds of thousands of workers will take to the streets.

João Proença, head of the UGT trade union, said the general strike was a “fair and fundamental” attempt to change government policy:

Government policies will have a negative impact on employment. We need policies that give preference to increasing employment.

Portugal has long been bundled with Greece, Ireland and Spain as the weakest members of the eurozone. Last month it announced a wide-ranging €5bn austerity package that includes public sector wage cuts, and an increase in value added tax.

Here’s video footage of George Osborne explaining why Britain is taking part in the Irish rescue package.

(via the BBC)

10.33am: The cost of insuring Ireland’s sovereign debt against default has fallen this morning, as investors welcomed the bailout plan. But there is only limited relief, and concern that Portugal will be the next country to feel the heat.

The cost of insuring Irish debt against default for the next five years fell by around 7% this morning. The five-year credit default swap dropped 35 basis points to 470bp – which means it costs €470,000 to insure €10m of debt until 2015.

That is a more muted reaction than we saw this summer when Greece’s bailout was agreed (which partly reflects the fact that Greek debt was seen as much riskier).

The initial market optimism that we saw early this morning is also dying off. Shares in Allied Irish Banks (which will soon be 90% owned by the Irish taxpayer) jumped by 8% when trading began, but are now down by 4%.

This follows a prediction from the chairman of Anglo Irish bank that more nationalisations are likely across the banking sector. Alan Dukes called for “decisive action” to produce “two viable banks” in Ireland.

Looking at Portugal , its five-year CDS contracts have actually risen this morning, to 440 basis points. If they keep rising, the IMF team in Dublin might just find themselves flying straight to Lisbon….

10.10am: George Osborne probably regrets telling readers of The Times four years ago that Britain should take lessons from Ireland’s “economic miracle”.

Particularly galling for the Chancellor – the article from 2006 can still be read online today , having somehow escaped confinement behind The Times’ paywall.

Now, the team at Political Scrapbook have immortalised Osborne’s views in this video, so there’s no danger of forgetting there was a time when Ireland stood “as a shining example of the art of the possible in long-term economic policymaking”.

9.58am: Ireland’s opposition finance minister has claimed that a split is developing between the IMF and the European Central Bank over the terms of Ireland’s rescue package.

Michael Noonan of Fine Gael said that the two sides disagree about how much pain should be inflicted on the investors who have lent money to Ireland’s banks.

The IMF would be following the type of American model where those that lend recklessly should be punished as well as those who borrow recklessly. And that would mean, as the banking system is worked out, there would be discounts taken from the bondholders.

The European position has been over the years that no European bank would be allowed to default and that has been the principle of the European Central Bank… But obviously we know from statements by Angela Merkel and others that that… it is changing for the future.

Noonan was also unimpressed by the news that Ireland’s 12.5% corporation tax rate has been saved – claiming that it was never at risk.

9.45am: You can listen to Brian Lenihan’s full interview here (via Lisa O’Carroll).

9.21am: Brian Lenihan, the Irish finance minister, also hit the airwaves this morning to defend the decision to seek an IMF/EU rescue package. He told state broadcaster LTE that Ireland was “not bust”, and that there was no guarantee that the country would have to draw on any loan in full.

Lisa O’Carroll has more from Dublin:

Lenihan said the IMF were happy with the four-year plan to be unveiled on Wednesday, setting fiscal goals until 2014.

“They are broadly satisfied with it. Nobody’s going to sign off a plan in the second, third or fourth year in every last detail but they were impressed by the plan.”

He also hinted that the so-called Croke Park Agreement struck with the unions which guarantees no drop in pay in the public sector would be scrapped after a year.

The deal heralds a new wave of restructuring in Irish banks and the potential for a new ‘good bank’ . There is speculation that loss-making tracker mortgages may be taken out of Permanent TSB and other banks in a bid to make them work again.

“Banks will be downsized to meet the real needs of the Irish economy, and primarily that. That has to be the primary focus of our banks. Other surplus activities will have to be discarded,” said Lenihan.

8.40am: The prospect of Britain pumping an estimated £7bn into the Irish rescue package has already been attacked this morning, by a right-wing thinktank and a eurosceptic Conservative MP.

Sam Bowman , head of research at the Adam Smith Institute , has argued that the rescue package is “a bad deal for the UK”. Having declined to join the single currency, Britain should not now weaken its own economy by riding to its rescue, he argued.

[The rescue plan] puts the interests of the European Union and the eurozone before the interests of Ireland and the British government should have no part in paying for it.

Asking the British taxpayer to cough up £7bn shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

Douglas Carswell , the Conservative MP for Clacton, has also criticised the plan. Carswell, a leading light among the group of eurosceptics on the government bankbenches, believes it is simply wrong for Britain to be supporting the eurozone.

If we are going to pay to solve this crisis we should be helping to pay Ireland to quit the euro. Ireland’s misery is only going to end when it has its own currency again.

At a time of austerity, again we are paying vast sums to the European Union.

These voices are not going to go away, either. The prime minister intimated last week that there would be an “early” debate in the House of Commons if Britain did take part in any rescue package.

George Osborne is also expected to give a statement to parliament about the situation this afternoon.

8.33am: The attraction of a separate loan to Ireland is that it keeps Britain out of a eurozone rescue deal, Osborne explained.

The chancellor told the Today Programme that “we don’t want to be part of a permanent bailout mechanism for the euro”.

He addead that “‘I told you so’ is not much of an economic policy”, adding: “It’s in everyone’s interest that we make the euro work.”

8.15am: Chancellor George Osborne is speaking about the bailout right now, and just confirmed that Britain is considering giving Ireland a bilateral loan, as well as contributing to the IMF rescue package.

Ireland is a friend in need, and we are here to help.

Osborne also indicated that Britain’s commitment will be measured in “billions, not tens of billions”, adding that the total bill will be around £7bn.

As we reported last week , any bilateral loan will directly push up Britain’s own deficit for this year. As David Cameron put it, it’s money that you “have to go out and raise in order to lend it”.

8.07am: Ireland’s decision to seek a bailout has been welcomed by the financial markets. The euro gained nearly half a penny against the pound in early trading, hitting 85.9p.

The London stock market has just opened, and the FTSE 100 index has quickly gained 47 points to 5780. Other European markets are also showing gains, as the prospect of the collapse of the eurozone recedes.

The picture is a bit less rosy in the bond markets, though, where the interest rate demanded by traders to hold Ireland’s government debt has only fallen slightly. The 10-year Irish bond is trading with a yield of 8.2%, down slightly from 8.4% on Friday afternoon.

David Buik, city commentator at BGC Partners, says investors are still wary of holding Irish debt as “we have no official meat on the bone”.

I expected a greater rally, but without knowing the terms of the bailout, perhaps expectations were too high!

8.02am: Dick Roche , Ireland’s Europe minister, has been talking this morning about the decision to seek a bailout.

Roche denied that the Irish government misled its citizens through most of November when it repeatedly insisted that it did not need help:

At the meeting of European finance ministers just a week ago, all the actions taken by the Irish government were endorsed.

Roche told the Today Programme that there had been an “extraordinary series of events” in the last few weeks, prompted by Angela Merkel . This is a reference to the German chancellor’s warning that a eurozone member that hits the financial rocks would face “orderly” bankruptcy . Although Merkel was discussing a future after 2013, Roche clearly sees her as the catalyst that pushed Ireland to the brink, as bondholders rushed to ditch Irish debt.

Roche also reiterated that while the Irish state was well-financed until the middle of 2011, “the banking position was so severe” that the country needs help now.

7.50am: Ireland bowed to the inevitable last night, and asked the IMF and the EU for a rescue package . The deal is meant to shore up its banking system, and prevent the collapse of the euro.

Details of the plan will be hammered out over the next few days. Many questions remain – including the precise size of the bailout, Britain’s own involvement, and the political ramifications of the move.

How will financial markets react? Will Taoiseach Brian Cowen be blamed for the “capitulation”? And is Portugal, the next weakest member of the Eurozone, about to come under more pressure?

All may become a little clearer in the next few hours, as we bring you the latest developments and reaction.

8.40am: The prospect of Britain pumping an estimated £7bn into the Irish rescue package has already been attacked this morning, by a right-wing thinktank and a eurosceptic Conservative MP.

Sam Bowman , head of research at the Adam Smith Institute , has argued that the rescue package is “a bad deal for the UK”. Having declined to join the single currency, Britain should not now weaken its own economy by riding to its rescue, he argued.

[The rescue plan] puts the interests of the European Union and the eurozone before the interests of Ireland and the British government should have no part in paying for it.

Asking the British taxpayer to cough up £7bn shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

Douglas Carswell , the Conservative MP for Clacton, has also criticised the plan. Carswell, a leading light among the group of eurosceptics on the government bankbenches, believes it is simply wrong for Britain to be supporting the eurozone.

If we are going to pay to solve this crisis we should be helping to pay Ireland to quit the euro. Ireland’s misery is only going to end when it has its own currency again.

At a time of austerity, again we are paying vast sums to the European Union.

These voices are not going to go away, either. The prime minister intimated last week that there would be an “early” debate in the House of Commons if Britain did take part in any rescue package.

George Osborne is also expected to give a statement to parliament about the situation this afternoon.

8.33am: The attraction of a separate loan to Ireland is that it keeps Britain out of a eurozone rescue deal, Osborne explained.

The chancellor told the Today Programme that “we don’t want to be part of a permanent bailout mechanism for the euro”.

He addead that “‘I told you so’ is not much of an economic policy”, adding: “It’s in everyone’s interest that we make the euro work.”

8.15am: Chancellor George Osborne is speaking about the bailout right now, and just confirmed that Britain is considering giving Ireland a bilateral loan, as well as contributing to the IMF rescue package.

Ireland is a friend in need, and we are here to help.

Osborne also indicated that Britain’s commitment will be measured in “billions, not tens of billions”, adding that the total bill will be around £7bn.

As we reported last week , any bilateral loan will directly push up Britain’s own deficit for this year. As David Cameron put it, it’s money that you “have to go out and raise in order to lend it”.

8.07am: Ireland’s decision to seek a bailout has been welcomed by the financial markets. The euro gained nearly half a penny against the pound in early trading, hitting 85.9p.

The London stock market has just opened, and the FTSE 100 index has quickly gained 47 points to 5780. Other European markets are also showing gains, as the prospect of the collapse of the eurozone recedes.

The picture is a bit less rosy in the bond markets, though, where the interest rate demanded by traders to hold Ireland’s government debt has only fallen slightly. The 10-year Irish bond is trading with a yield of 8.2%, down slightly from 8.4% on Friday afternoon.

David Buik, city commentator at BGC Partners, says investors are still wary of holding Irish debt as “we have no official meat on the bone”.

I expected a greater rally, but without knowing the terms of the bailout, perhaps expectations were too high!

8.02am: Dick Roche , Ireland’s Europe minister, has been talking this morning about the decision to seek a bailout.

Roche denied that the Irish government misled its citizens through most of November when it repeatedly insisted that it did not need help:

At the meeting of European finance ministers just a week ago, all the actions taken by the Irish government were endorsed.

Roche told the Today Programme that there had been an “extraordinary series of events” in the last few weeks, prompted by Angela Merkel . This is a reference to the German chancellor’s warning that a eurozone member that hits the financial rocks would face “orderly” bankruptcy . Although Merkel was discussing a future after 2013, Roche clearly sees her as the catalyst that pushed Ireland to the brink, as bondholders rushed to ditch Irish debt.

Roche also reiterated that while the Irish state was well-financed until the middle of 2011, “the banking position was so severe” that the country needs help now.

7.50am: Ireland bowed to the inevitable last night, and asked the IMF and the EU for a rescue package . The deal is meant to shore up its banking system, and prevent the collapse of the euro.

Details of the plan will be hammered out over the next few days. Many questions remain – including the precise size of the bailout, Britain’s own involvement, and the political ramifications of the move.

How will financial markets react? Will Taoiseach Brian Cowen be blamed for the “capitulation”? And is Portugal, the next weakest member of the Eurozone, about to come under more pressure?

All may become a little clearer in the next few hours, as we bring you the latest developments and reaction. Ireland bailout European debt crisis European Central Bank IMF Ireland Portugal Graeme Wearden Haroon Siddique guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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Dublin, Ireland, United Kingdom (AHN) – Ireland formally accepted over the weekend the international bailout offer of the European Union and the International Monetary Fund. After hedging for a few days and insisting Dublin had sufficient financial resources, Irish authorities gave in to pressure and asked for a loan.

According to reports, the bailout would be $115.5 billion (77 billion pounds). It would be a three-year loan to be used mainly to rescue Ireland’s debt-ridden banks. The U.K. and Sweden are considering extending additional loans to Dublin, aside from the $115.5 billion bailout.

For this bailout, British taxpayers would shell out $11.5 billion (7 billion pounds), at a time when the country itself is implementing tough austerity measures which would lead to the loss of 500,000 public sector jobs over five years.

Britain is bent on assisting Ireland because of the $225 billion (150 billion pounds) exposure of British banks to Ireland.

Irish Prime Minister Brian Cowen asked residents Sunday to support the loan. EU Economic and Financial Affairs Commissioner Olli Rehn said the bailout seeks to protect the financial stability of the continent. With the bailout, Irish banks will be restructured to make them smaller, while some analysts forecast some financial institutions would be nationalized.

Irish Finance Minister Brian Lenihan said Dublin has a running deficit of more than $24 billion (16 billion pounds), which the Irish government could not afford to finance given present market rates and amid issues of solvency of Irish banks. He said the bailout money would mainly serve as a standby fund, which may not 100 percent be necessarily used.

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Dublin, Ireland, United Kingdom (AHN) – After hedging for several days, Ireland finally admitted Thursday that Dublin needs the international bailout being offered by the European Central Bank or the International Monetary Fund.

Irish Central Bank Governor Patrick Honohan said the international loan would likely happen to deal with concerns of the market over Ireland’s international debts. Finance Minister Brian Lenihan defended the Irish government’s battling the bailout because it has to protect the interest of taxpayers.

An international loan of up to $127.5 billion (GBP85 billion) is expected to be offered to Ireland, and Dublin will likely accept the assistance to reassure international investors. Britain has separately also offered Ireland $10.5 billion (GBP7 billion) in assistance.

Despite agreeing in principle to the bailout, Irish Prime Minister Brian Cowen stressed Dublin has not given up its sovereignty. Cowen said the main focus of the ongoing discussions and consultations with financial experts is on Ireland’s banking situation. He assured Irish officials will work closely with the European Commission, ECB and IMF to ensure Dublin’s real economy remains strong and sustainable.

On Thursday, 12 financial experts arrived in Dublin to start discussions with Irish officials on how to work out the bailout.

Despite the bailout, IMF assured Irish residents the assistance would not result in the country’s social welfare programs being reduced, public servants losing their jobs, tuition fees going up, public sector salaries being cut and new property taxes being introduced.

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Dublin, Ireland (AHN) – Representatives from the European Union, the International Monetary Fund and the European Central Bank are due to arrive in Dublin on Wednesday to discuss the Irish financial crisis with its government, which has not yet requested any aid.

The EU already believes that Ireland needs some kind of bailout to bring the nation out of its debt crisis – a thought that embarrasses the Irish government.

European finance ministers also discussed Irish debt crisis in a meeting in Brussels earlier this week.

However, the ministers insisted that a fresh discussion was needed because they did not discuss the potential bailout in detail since the Irish government did not request for it.

They added that no financial helps could be given to anyone without any request despite call by eurozone countries like Spain and Portugal to settle the matter as it could disorder the financial markets.

The Irish government, however, is reluctant to borrow money, saying that it has enough money for public spending until into next year.

It also announced that it would announce austerity measures to bring budget deficit in line with the EU norms.

Meanwhile, addressing a meeting of the Economic and Financial Affairs Council (Ecofin), Belgian Finance Minister Didier Reynders, whose country holds the rotating EU presidency, said that the Irish situation was a little different from Greece, which received an EU-IMF rescue package earlier this year.

“This time we’re concerned about a country, but there’s no request from that country,” said Reynders. “It’s a major difference between this case and the Greece case because we have instruments to act,” he added.

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Student Niamh Buffini works hard and plays hard. As Ireland’s No 1 taekwondo martial arts practitioner – she is rated 12th in the world – her ambitions include winning Olympic gold for Ireland.

But by the end of this month her future will have been decided by forces not just beyond her control but seemingly those of her government also. Ireland is on the cusp of insolvency. Some economists argue that it already is.

Buffini will soon learn if her fees at the Institute of Technology in Tallaght, south Dublin, have climbed beyond her means. Her father is a self-employed builder, which has recently become a euphemism for “unemployed”.

“My class size will have dropped by 50% by next year,” Buffini said. “Even lecturers took part in the recent student protests over fees because society here is going to be left with very few educated people. My best friends have already left – they’re doing bar work in Spain and Australia.”

Last week was not a good week for Ireland. Speculation about a European Union-backed bailout pushed its borrowing costs to unprecedented heights.

At Buffini’s college on Friday, the day began with a protest by construction workers who were supposed to have been working on a new wing. Their paymaster Michael McNamara – the country’s premier construction firm – had been put into receivership under the weight of debts of €1.5bn (£1.27bn), leaving them jobless and out of pocket for work they had already completed.

So far the workers’ demonstrations have remained largely peaceful. Indeed, many Tallaght students seemed shocked by the violence they witnessed in TV reports from London involving their British counterparts. But that may change.

Economists are sought-after celebrities in Ireland at the moment and none is more famous than Morgan Kelly. His doom-laden words are lapped up by a nation addicted to Celtic melancholy.

Kelly, of University College Dublin, was laughed at, scorned and even threatened when he correctly predicted, as long ago as 2007, that Ireland’s property bubble was heading for a spectacular explosion.

Now he is forecasting mass mortgage defaults and an ugly popular uprising. The first stirrings are already visible, he says, with “anxiety giving way to the first upwellings of an inchoate rage and despair that will transform Irish politics along the lines of the Tea Party in America”, giving rise to a new “hard-right, anti-Europe, anti-traveller party”.

The fact that Kelly got it right last time means that his dire warnings are now being given serious consideration this time around, but so far there is no evidence that the Irish are turning into racist extremists.

Polish immigrants, whose arrival in Ireland less than a decade ago increased the workforce by an astonishing 20%, have left in orderly fashion and with no complaints about their treatment. More worrying is the trend for the young Irish to follow them abroad.

Mark Ward, president of Tallaght’s student union, says that 1,250 students are leaving Ireland every month. One in five graduates is seeking work outside the country. The Union of Students in Ireland believes that 150,000 students will emigrate in the next five years.

Ward, a 26-year-old marketing graduate, said: “The government’s to blame for bankrolling the banks who were lending to their property developer friends. They all thought the party would never end.

“Students shouldn’t have to pay for the mistakes of the government and their developer pals. It’s going to take years to sort this mess out and it won’t be just my generation which will be blighted big time.”

Is the social fabric of Ireland beginning to unravel? The Kingdom , one of the country’s much-loved local papers, recently reported that nearly 200 Gaelic footballers and hurlers have left Kerry to play in Britain, Australia and the US in the first seven months of this year. The true figure is probably double that.

The charity Barnardo’s said that children were asking it for food because there was not enough for them to eat at home. “Some of our services are being asked by children if they can take food home for later because there just isn’t enough,” said Carmel O’Donovan, a project co-ordinator with Barnardo’s.

And it’s not just the most vulnerable who are feeling the pinch. Greystones is a wealthy Wicklow seaside town whose most famous resident is Sean FitzPatrick, the former chairman of nationalised Anglo Irish Bank. Emer O’Brien, an interior designer, and her architect husband Killian are struggling to repay their mortgage.

“It is awful, a bit like waiting for a bomb to explode but simply not knowing when,” she said. “I don’t think anybody has any faith in any of the politicians to fix this problem. Over 70% of education and health spending goes on pay and pensions, so all the cuts in those departments are coming from front-line services.

“I hope I don’t get sick in the coming months because there’ll be nobody to tend to you in the hospitals. Of course, a lot of people would be heading across the Irish Sea or the Atlantic if only they could sell their houses, but we can’t do that either. So basically we’re stuck on the Titanic as it goes down.”

Next month the government will deliver its latest austerity budget with the aim of slashing a further €15bn from public spending on top of the €14.5bn it has already been forced to cut. But Kelly has argued that the public sector cuts are “an exercise in futility” when compared with the €70bn bill for Ireland’s bad banks. “What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?” he asked in the Irish Times last week.

Put at its starkest, for the next six to seven years, every cent of income tax paid by Irish citizens will go to cover the banks’ losses.

At the Capuchin Friary in Smithfield sausage breakfasts are being served to Dublin’s growing band of homeless and needy people. “There’s new faces arriving every day. At first they’re embarrassed to be here but we put them at their ease,” one of the volunteers said.

Gerry Larkin, the drop-in centre’s security manager, has noticed that occupants of the many neighbouring apartment blocks which were supposed to regenerate the city’s down-at-heel north side are now taking their places in the queue for food parcels.

He said: “Some of them have got into trouble with their mortgages and they’re asking me at the door: ‘Any chance of coming in, can you give me even a bit of food for the kids?’

“We’ve gone from 150 breakfasts during the boom years to 450 now and another 700 coming in for lunch.”

Five nights a week Niamh Buffini trains in her local martial arts club, nurturing her dream of winning gold for Ireland. “I’m always upbeat, but with my friends the chat about how bad things are is never ending.

“I’m an optimist by nature and I hope we can get out of this. The best I could say is I couldn’t see it getting any worse.” Ireland Financial crisis Global recession Banking David Sharrock guardian.co.uk © Guardian News & Media Limited 2010 | Use of this content is subject to our Terms & Conditions | More Feeds

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