$113 billion Irish bailout completed

LONDON – European officials rescued their second country in seven months on Sunday, offering financially strapped Ireland a bailout package worth $113 billion in a bid to shore up confidence in the battered euro.

Dublin quickly accepted the lifeline, hoping to calm investors ahead of the opening of international markets today.

All eyes are now turned to Portugal and Spain, where, in many ways, the true mettle of the Irish bailout will be tested. Fear that Lisbon and Madrid are also in danger of defaulting has led investors to dump those countries’ bonds and push up their borrowing costs in recent days.

Officials from the European Union and the International Monetary Fund hope that their rescue of Ireland will reassure investors of the euro’s soundness and head off the need for bailouts on the Iberian Peninsula, especially of Spain, the EU’s fourth-largest economy.

“This program can underpin market confidence and bring Ireland’s economy back on track,” Dominique Strauss-Kahn, the managing director of the IMF, said in a prepared statement.

Irish Prime Minister Brian Cowen defended the package as “the very best achievable outcome” for his country.

“I don’t believe there were any other realistic options,” Cowen said after the bailout was announced in Brussels following a meeting of EU finance ministers.

“We are not an irresponsible country,” Cowen said. “We are a country that recognizes its international obligations.”

Ireland’s budget deficit is equal to 32 percent of gross domestic product, the highest in Europe, which was brought on by the government’s decision to assume the debts of Irish banks that failed when the real estate market crashed.

The EU-IMF loan package allocates $46.6 billion to prop up Ireland’s banks, with about $13 billion to be taken immediately and the rest held in reserve. An additional $66.5 billion will go toward Ireland’s public finances.

The IMF’s contribution to the bailout totals about $30 billion. Ireland is expected to put $23.3 billion of its own money into the rescue fund, partly by transferring money out of pension reserves.

The average interest rate on the loans will be 5.8 percent, slightly higher than the rate for Greece. But Dublin has more time to pay back the money – up to seven years.