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EU Ministers Worry Irish Debt Crisis Could Spread

RENEE MONTAGNE, Host:

This is MORNING EDITION, from NPR News. Good morning. I'm Renee Montagne.

STEVE INSKEEP, Host:

NPR's Philip Reeves filed this report from the Irish capital, Dublin.

PHILIP REEVES: If you compare Ireland to the big fish of Europe - like Germany or France - it's a minnow. The population's only four-and-a-half million. Jim Power, chief economist with the Friends First investment firm, says its economy is tiny.

JIM POWER: It accounts for about 1 percent of the eurozone. So, you know, as a consequence, it probably shouldn't be terribly significant in the overall scheme of European events at the moment.

REEVES: Yet, says Power, right now the Irish minnow matters a lot. The Irish government's facing the biggest budget deficit in the eurozone. Interest rates on Irish bonds have soared to around 8 percent. Then there's the question of Ireland's banks. They lie at the heart of this crisis. Power says no one wants to lend to them.

POWER: The Irish banks are now finding it impossible to access funding from international capital markets, and as a result of that, you know, they are now requiring significant further recapitalization.

REEVES: Those mostly state-owned banks are still struggling with the collapse of Ireland's huge property bubble. The government's spending many billions of euros bailing them out. Power says it can't afford to give them any more.

POWER: The black hole is extremely big, and it's still getting bigger. So there is a lot more money required. Conservatively, it is estimated that around 50 billion Euro, which is about a third of Irish GDP, will have to be pumped into the banking system. But unfortunately, that figure is continuing to rise.

REEVES: The worry now is that Ireland's malaise is destabilizing the entire eurozone. It's adding to the nervousness of the financial markets when it comes to lending to other countries grappling to control hefty deficits, like Spain and Greece. Portugal's been complaining that Ireland's crisis is contagious and could force it to seek help.

DEARBHAIL MCDONALD: It's a national crisis, certainly, for Ireland. But it's also a geopolitical crisis and - for the eurozone, for the European project. This crisis is chundering up major, major, major questions about the European project and just about our general identity.

REEVES: This is a sensitive issue here. Margaret Ward, a Dublin-based financial journalist, says many Irish dislike the concept of being bailed out from abroad.

MARGARET WARD: This is a very delicate time for the Irish psyche. For them to feel that they have absolutely handed over the sovereignty of their nation to somebody else through overspending and mismanagement is pretty shocking.

REEVES: The Irish government's drawing up a four-year austerity program that it's expected to announce soon. Will it work? Ward believes Ireland's problems are going to get worse.

WARD: I think we're in huge trouble. I don't think the government projections about how we're going to get ourselves out of this mess are accurate. They're saying our growth figures are going to be 1.75 percent, when most people say we'll be lucky if there's any growth, falling tax receipts. We have people emigrating again.

REEVES: You don't have to look far on Dublin's streets to see the impact of Ireland's collapse. Thomas Katalovich set out a few years back from his home in Latvia, eager to exploit the opportunities available in the expanding European Union. He arrived in Ireland at the height of its boom, and was soon earning the equivalent of $100 a day working in construction. Now Katalovich is stranded. He's spends his days begging in the winter cold.

THOMAS KATALOVICH: Yeah, it's cold to sit on concrete. Yes. It's actually not really good. But what? What to do? What? That's the life, you know. You can understand that life is not easy.

REEVES: Philip Reeves, NPR News, Dublin. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Philip Reeves is an award-winning international correspondent covering South America. Previously, he served as NPR's correspondent covering Pakistan, Afghanistan, and India.
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