How a Promise to Guarantee Bad Debts Came to Haunt Ireland

25 November 2010

Irish Prime Minister Brian Cowen speaks to reporters in Dublin on Sunday

This is the VOA Special English Economics Report.

On Wednesday, Ireland's Prime Minister Brian Cowen announced measures to cut the biggest budget deficit in Europe.

BRIAN COWEN: "Today we've come to announce a four-year plan, between now and 2014. It's to bring certainty for our people. It's to ensure they have hope for the future."

The plan aims to cut spending and raise taxes by twenty billion dollars. These austerity measures are a step toward getting aid from the European Union and the International Monetary Fund.

But Mr. Cowen's government could fall before next year's budget is passed.

The government asked for help Sunday after weeks of saying it did not need any. The EU and the IMF are expected to provide about one hundred fifteen billion dollars -- or about half of Ireland’s economy.

Ireland got into trouble by guaranteeing the debts of its banks during the world financial crisis two years ago. That promise has now cost over sixty billion dollars.

Roisin O'Sullivan is an economics professor at Smith College in Massachusetts and a former economist at the Central Bank of Ireland.

ROISIN O'SULLIVAN: "What was different about the Irish approach was that all deposits were guaranteed and bondholders, investors that had bought bonds in these banks, also received the government guarantee. This was a more extensive bailout than most countries pursued."