The Irish central bank has warned that rescuing the Anglo Irish Bank from ruin could cost up to 34 billion Euros in the worst case scenario.
In the best case, it will still cost a whopping 29.3 billion Euros to bail out the financial institution that was exceptionally hard hit by the economic crisis.
The Allied Irish Bank, in which the Irish government has a 19% share, will also need to to raise three billion Euros before the end of the year.
In an interview with the Financial Times, the Irish finance minister, Brian Lenihan, said: “Any Anglo failure would bring down the sovereign. It is systemically important not because of any intrinsic merit in the bank. But because of its size relative to the national balance sheet. No country could contemplate the failure of such an institution”.
The taxpayer-backed Anglo Irish Bank has already been given 22.9 billion Euros by the government since it’s nationalisation in January 2009 but despite this, Ireland is still one of the weakest economies in the eurozone.
The additional support will raise the country’s debt to GDP ratio to 99%, which is massively above the European limit of 60%. Mr Lenihan said he will axe three billion Euros from spending in the budget to shrink the deficit to three per cent of GDP by 2014 to stick within the eurozone rules.
Padhraic Garvey, rate strategist at ING, said: “It’s a pretty astonishing deficit number. It’s dominated of course by accounting practices because the Irish state is taking the pain upfront and funding it slowly over 10 years”.