[ti:How a Promise to Guarantee Bad Debts Came to Haunt Ireland] [ar:Steve Ember] [al:Economics Report] [by:www.51voa.com] [00:00.00]This is the VOA Special English [00:03.03]Economics Report. [00:04.94]On Wednesday, [00:06.13]Ireland's Prime Minister [00:08.27]Brian Cowen announced measures [00:10.66]to cut the biggest budget deficit [00:13.80]in Europe. [00:15.14]BRIAN COWEN: "Today we've come to [00:16.23]announce a four-year plan, [00:18.12]between now and 2014. [00:21.11]It's to bring certainty [00:23.15]for our people. [00:25.34]It's to ensure they have [00:28.47]hope for the future." [00:30.00]The plan aims to cut spending [00:32.33]and raise taxes [00:33.88]by twenty billion dollars. [00:36.17]These austerity measures [00:38.65]are a step toward getting aid [00:40.89]from the European Union [00:42.79]and the International Monetary Fund. [00:45.87]But Mr. Cowen's government [00:47.67]could fall before next year's [00:50.16]budget is passed. [00:51.85]The government asked [00:53.84]for help Sunday after weeks [00:56.23]of saying it did not need any. [00:59.17]The EU and the IMF are expected [01:03.01]to provide about one hundred [01:05.15]fifteen billion dollars [01:07.49]-- or about half of Ireland's economy. [01:11.47]Ireland got into trouble [01:13.86]by guaranteeing the debts of its banks [01:17.14]during the world financial crisis [01:20.13]two years ago. [01:21.77]That promise has now cost [01:24.32]over sixty billion dollars. [01:27.01]Roisin O'Sullivan [01:30.41]is an economics professor [01:32.15]at Smith College in Massachusetts [01:34.69]and a former economist [01:36.48]at the Central Bank of Ireland. [01:38.97]ROISIN O'SULLIVAN: "What was different [01:40.16]about the Irish approach was that [01:42.65]all deposits were guaranteed [01:44.79]and bondholders, investors [01:49.48]that had bought bonds in these banks, [01:51.53]also received the government guarantee. [01:54.77]This was a more extensive bailout [01:57.50]than most countries pursued." [01:59.49]Professor O'Sullivan says [02:01.43]Irish bankers and banking supervisors [02:04.62]had too close of a relationship. [02:07.01]Ireland was known as the "Celtic Tiger" [02:11.09]in the nineteen nineties. [02:12.73]Its educated, English-speaking workers [02:16.02]and low taxes appealed [02:18.40]to foreign companies. [02:20.40]Its economy grew quickly. [02:22.63]But foreign investment [02:24.97]and low interest rates [02:26.91]inflated a property bubble, [02:29.40]raising prices to levels [02:31.59]that could not be supported. [02:33.88]Bad property loans hit hard [02:36.77]at Ireland's main banks. [02:38.96]Unemployment is over thirteen percent. [02:43.24]Ireland's bank bailout and government [02:47.27]spending have expanded this year's [02:49.86]deficit to more than thirty percent [02:52.79]of gross domestic product. [02:55.13]This is ten times the EU limit [02:58.92]for a deficit in relation [03:01.06]to the size of an economy, [03:02.92]as measured by GDP. [03:06.05]But John James at Pace University [03:09.48]in New York state says [03:11.77]there is little [03:13.74]the European Union can do. [03:15.30]Germany and France want to [03:18.72]give the European Commission [03:20.51]more power over national budgets. [03:23.89]For now, rescues by the European [03:26.63]Central Bank and other lenders [03:28.83]are the only answer in a debt crisis. [03:32.61]EU officials want to complete [03:35.45]the Irish aid plan quickly. [03:38.29]They want to be ready in case [03:40.83]of more bad news from economies [03:43.47]like Greece, Portugal and Spain. [03:47.15]And that's the VOA Special English [03:50.65]Economics Report, [03:52.44]written by Mario Ritter. [03:54.48]I'm Steve Ember.