Ireland enters final stage?

Every country on the brink of collapse looks like treading the same path to a bailout: denial, anger, bargaining, depression, and acceptance, as the five stages of grief by Elizabeth Kübler-Ross.

Ireland is about to get on the stage of bargaining or acceptance through depression on financial assistance from the EU, after repeatedly denying the rumor of outside help like here or here.

Ireland signalled a willingness to weigh European Union measures to aid its banks, potentially abandoning a go-it-alone defense to prevent a resurgent debt crisis from destabilizing the euro.

With European Central Bank officials urging Ireland to set aside national pride and tap the 750 billion-euro ($1 trillion) fund created in May, Prime Minister Brian Cowen put possible aid for banks on the agenda of today's meeting of euro finance ministers.

"We have to discuss these matters with partners as to how best to underpin financial and banking stability within the euro area," Cowen told state broadcaster RTE in an interview late yesterday. Ireland has not asked for any bailout, he said.

The Irish turmoil marks a new stage in a sovereign debt crisis that was triggered by Greece a year ago and threatened to break the euro region apart in May. Irish bonds jumped yesterday as traders bet on a rescue at today's Brussels meeting, risking a renewed selloff in the absence of an agreement.

The yield on Ireland's 10-year government bond fell 21 basis points to 8.15 percent, the lowest since Nov. 9. That cut the extra yield over 10-year German bunds to 540 basis points compared with a record 652 basis points on Nov. 11.

Cowen's language marks a shift from last week, when the government said there were no talks under way with European authorities, and he left the door open for the use of EU money to shore up the banks. Ireland isn't filing a request "for the funding of the state," he said, since it has enough cash to last until mid-2011. He doubted a concrete agreement at today's meeting, which starts at 5 p.m. local time.

The BBC reported that "(t)he provisional estimate for EFSF loans is believed to lie between 60bn and 80bn euros." Given 110 billion euros of Greece's bailout package from the EU and the IMF in May, however, the amount suggested looks like insufficient to save a country drowned in a mountain of budget deficit estimated to be 32% of GDP in 2010.

Moreover, Ireland has been hardest-hit by a recession after the Lehman crisis among the eurozone "peripheral" countries. Its GDP plummeted by 7.6% in 2009, well over Greece's 2.0% and the third worst in the entire 16 eurozone nations after Slovenia and Finland.

Ireland's predicaments don't end there. It is the only country where prices have declined since 2007 among the eurozone, meaning the country is in deflation.

Despite the worsening economy, Ireland is going to cut the budget deficit by 6 billion euros, 1.5 times GDP, in 2011, and 15 billion euros all together by 2014 to reach the 3% limit of the budget deficit. The country projects real GDP to grow 1.75% next year against a massive spending cut, mainly due to a 5% increase of exports led by the moderate but steady global economy. Prices are set to rise 0.75% in 2011.

The government is trying hard to make believe the viability of the plan, defending Irish bonds not to be sold off. But few would be convinced that huge budget cuts coupled with the slower global recovery bring an economic growth and inflation, if any, even though taking into account a weak euro.

It wouldn't take long before the once-touted Celtic Tiger succumbs to accepting an EU- or IMF-led bailout package as the final stage to deal with tragedy.