Even as Ireland announced a 5.5-billion-euro bailout ($7.6 billion) to save Ireland's three biggest banks, critics were questioning whether it would be enough to save the country's troubled banks.
Irish banks are the latest to need a bailout
Throughout the 1990s, Ireland's booming economy, fueled by its real estate and financial sectors, was the envy of Europe. Yet the seemingly unstoppable Celtic Tiger is now swimming in debt, much of it tied to the bursting of the real estate bubble and years of excessive borrowing and spending.
In an effort to reverse the country's slide into a recession, the Irish government has announced that it will inject 5.5 billion euros ($7.70 billion) into the country's three biggest lenders and move to take majority ownership of one.
The Irish government will take over the Anglo Irish Bank, acquiring a 75 percent stake for 1.5 billion euros ($2.09 billion). It will pump an additional 2 billion euros into Bank of Ireland and Allied Irish Banks, Ireland's Finance Minister Brian Lenihan announced on Sunday, Dec. 21.
Government stepping in
The Irish are hoping for a little luck of their own these days
Irish banks have watched their share prices plunge 90 percent since the financial crisis began in August 2007.
While the government will have a controlling stake in Anglo Irish Bank, it will also acquire 25 percent of the other two banks, allowing it to vote on "key issues" Lenihan told the Irish Times newspaper.
As recently as a week ago, Allied Irish Bank (AIB) thought it could weather the crisis. The bank's Managing Director Donal Forde testified before parliament that "we don't feel we need capital."
Lax lending laws criticized
The banks' reckless lending practices are at least partly to blame for their current financial woes. Finance Minister Lenihan denied that he was rewarding reckless lending with a taxpayer-financed bailout.
"Far from it, I mean heads have already started to roll, that's very clear," Lenihan said. "As far as reckless lending is concerned, this is a new beginning. We have to have proper lending, responsible lending, lending for the real needs of the economy. That is what I am determined to see happening."
Dublin became a shopping mecca during the boom
Fine Gael, Ireland's second largest political party, has criticized the Government's capital injection plan as being insufficient and called for an emergency meeting of parliament.
"The capital injections ... are unlikely to prove sufficient in restoring the confidence of domestic savers or international markets in the Irish financial system unless further steps are taken," Fine Gael finance spokesman Richard Bruton told the Irish Times newspaper.
Loan scandal added to mistrust
Yet the Irish banking sector has been rocked by the disclosure last week that Anglo Irish's chairman Sean FitzPatrick had failed to disclose 87 million euros in loans over a period of eight years. The loans, made to a building society, were done in such as way that they did not show up in bank reports. FitzPatrick, who headed the bank for nearly two decades, resigned on Thursday.
"This transfer of loans did not breach banking or legal regulations. It was, however, inappropriate from a transparency point of view," FitzPatrick said.
On Friday, Anglo Irish's group Chief Executive David Drumm stepped down, saying news of the concealed loan made it "appropriate" for him to quit.
Europe 's banks on life support
Across Europe, banks are in trouble
Ireland is not alone in bailing out its troubled banks. In Germany, the government package includes up to 400 billion euros in loan guarantees and 80 billion euros in direct capital investment. But the country's banks have been leery to take the government up on its offer, which is seen as having too many strings attached.
The German bailout package provides banks with up to 400 billion euros in loan guarantees and up to 80 billion euros in direct capital investment.
Bailouts in the billions of euros have also been announced in Britain and France.
The Irish government has announced measures to get credit flowing to businesses and individuals. It has also announced new rules aimed at making business lending more transparent.