BRUSSELS — European Union nations agreed to give $89.4 billion in bailout loans to Ireland on Sunday to help the country weather its banking crisis.
The rescue deal, approved by finance ministers at an emergency meeting, means two of the eurozone's 16 nations have now come to depend on foreign help and underscores Europe's struggle to contain its spreading debt crisis. The fear is that with Greece and Ireland shored up, speculative traders will target the bloc's other weak fiscal links, particularly Portugal.
In Dublin, Irish Prime Minister Brian Cowen said his country will immediately boost the capital reserves of its state-backed banks, whose massive bad loans were picked up by the Irish government but have become too much to handle. The rest of the loans will be used to cover Ireland's deficits for the coming four years. EU chiefs also gave Ireland an extra year, until 2015, to reduce its annual deficits to 3 percent of GDP, the eurozone limit. The deficit now stands at a modern European record of 32 percent.
European and IMF experts decided that Ireland first must run down its cash stockpile and deploy previously off-limits pension reserves in the bailout. Until now Irish and EU law had made it illegal for Ireland to use its pension fund to cover expenditures.
Cowen told a news conference that Ireland had no choice because international investors had decided that lending to Ireland was too risky and were demanding unreasonable returns.
"If we didn't have this program, we would have to go back to the markets, which as you know are at prohibitive rates," Cowen said.
To shore up longer-term confidence in the euro, EU finance ministers also agreed on a permanent mechanism that from 2013 would allow a country to restructure its debts once it has been deemed insolvent.