DUBLIN: Ireland's huge 85-billion-euro international rescue package represents a huge helping hand for a small country, but analysts say it may just be piling debt on top of more debt.
"It won't work of itself. It does allow access to credit to keep the country open but it will not fix the problem", Declan Jordan, lecturer in economics at University College Cork, told AFP.
Several Irish experts doubt the long-term viability of the rescue plan, which was agreed in November as Ireland teetered on the edge of bankruptcy as a result of a banking crisis and a housing crash.
The European Union and International Monetary Fund extended Ireland a credit line of 67.5 billion euros ($114 billion) to curb a huge deficit amounting to 32 percent of gross domestic product.
But Dublin itself must add 17.5 billion euros of its own money to take the package up to the full amount needed to cover all its liabilities.
"Until we can solve the banks, I think taking on more borrowings doesn't make sense. To fix a hole, we're making the hole bigger," Jordan said.
The crisis began in September 2008 when, faced with public panic over the solidity of the country's banks, the Irish government stepped in to guarantee all deposits.
The bill came to 440 billion euros, three times Ireland's total GDP.
Then in 2009 the government had to step in to recapitalise the banks, costing 55 billion euros.
"It's the most expensive bank bail-out in the western world," said Jordan. "It's a third of everything that we produce going to the banks. It's not manageable".
The scale of Ireland's woes can be seen when compared to the US Troubled Asset Relief Plan (TARP), agreed by President George W. Bush in October 2008 to bail out collapsing banks.
"Ireland's bank bailout had a face commitment around 15 percent as large as the TARP, in an economy 1/100th the size of the United States," said Paul Krugman, winner of the 2008 Nobel Prize for economics.
He wrote on his blog that the cost of the Irish bank bailouts "made a potentially manageable debt situation catastrophic."
Yet the burden will get even heavier as Ireland is punished by the bond markets.
The current 5.83 percent rate of interest is less than the 9 percent at which Dublin was forced to borrow just before the bailout.
But it is still higher than the 3-4 percent paid by European institutions, leading to accusations that the EU is profiting from Ireland's woes.
Declan Jordan said there was a "feeling in Ireland is that this plan is supposeed to help us but yet they're charging us too high an interest rate.
"It costs around five billion a year. The Irish perspective should be there to help us and that the interest rate is so high that it might make servicing the debt unmanageable," Jordan said.
The EU's top economic official Olli Rehn said last week that Ireland could find "room for maneouvre" on bailout repayment terms and conditions, after opposition parties pledged to do so if they win the election as expected.
But Professor John Fitzgerald, of the state-funded Economic and Social Research Institute, said that may not be necessary.
He said the Irish government had two years ago stashed away around 20 billion euros in cash, effectively a year's liquidity, but they now no longer needed to hold that and so would not need to pay interest on it.
"So the interest bill over the next two years is actually lower than it was before the plan was announced", he said.
Fitzgerald added: "Provided there aren't any more surprises in the banking system, unless there is some another hole we don't know about, the economy will exit from its problems in 2013-14."
Fitzgerald said recent figures for exports, the balance of payments and the exposure of banks gave cause for optimism.
"Eventually, the government and the banking system should come out of life support. If this deal works, German and French taxpayers will actually be better off: they'll get their money back with a substantial interest premium", he added.
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