Aer Lingus: collateral damage

Bord Gáis and the Electricity Supply Board, Ireland's motorways, CIE, the national oil reserves, our stake in Aer Lingus as well as the best parts of the Dublin banks and the whole of the national pension fund are likely to be pledged as security in return for the tens of billions of euro in loans the government will receive from the IMF, the European Community and the European Central Bank.

The warning, from markets sources, comes as the talks between the Irish authorities and the IMF-led troika were due to extend through today and into this week. The talks were focusing on ways of limiting the amount of the private banking debts that a generation of Irish citizens will be made to pay for.

But in an investor note this weekend, Société Générale in Paris, which helps sell Irish sovereign bonds for the government, said there were calls from around Europe for Ireland to stump up "collateral" in return for its bailout loans.

"When a developing county is given aid, we can understand why no security is required. Not so when a government has access to reserves, investments and state holdings. We see this aspect of the aid package as a litmus test of how soft on moral hazard Europe might be. We also see a tough onus placed on the government in question to implement serious austerity."

Local economists believe the total size of the open-ended bailout funds could exceed €100bn if the ECB were to demand back some or all of the loans it advanced to the Irish banks in recent weeks. Europe may, however, inch toward a tougher line than the government and burn the private bond holders in the Irish banks. In relation to the IMF?presence, a government spokesman said the "objective there is to access funds for Ireland at a much better rate", adding that currently rates of 8% plus being charged by the markets were prohibitive.

The Sunday Tribune has also learned that, in the days leading up to last weekend, ECB officials made their growing concerns known to Dublin about the open-ended amounts of cash that Frankfurt and the Irish Central Bank were pledging to Anglo Irish, AIB and Bank of Ireland. Leading central bank watcher Lorcan Roche Kelly said that funding of over €165bn had been loaned by the ECB and the Irish Central Bank to all Ireland-based banks by the end of October.

Leading European consultants who have monitored the heave by big states such as Germany and France and now Britain to neutralise Ireland's advantageous 12.5% corporate tax rate say that Ireland has suffered major damage with multinationals considering creating thousands of jobs here. "The comments by the German, French and Austrian finance ministers just cannot be swatted away," said John Hume, of Hume Brophy Consultants in Brussels. The Irish Central Bank has provided more than €34.6bn in emergency funds to lenders, believed to be Anglo, Irish Nationwide and EBS, while Frankfurt separately provided an estimated €90bn to the main lenders and €40bn to banks in the IFSC, according to estimates.

Brian Lucey, associate professor at TCD, said that the open-ended bailout loans, which Ireland may not need to tap, would be huge if the troika wanted to deliver a fund to cover the week-by-week funding of the banks, the banks' additional capital as well as the budget deficits and repay back sovereign debts for three to five years.