By Padraic Halpin
DUBLIN, Sept 8 (Reuters) - Ireland's government outlined acompromise solution for winding down troubled Anglo Irish Bankon Wednesday but failed to put either a price or a timeline onits plan.
Following is some analysis about what the measures mean forthe Irish economy, its banks and its government.
Finance Minister Brian Lenihan is hoping a gradual wind-downwill provide certainty to investors and result in a lowering ofIrish borrowing costs, which are unsustainable at current levelsover the medium-term.
However any easing of pressure might only be temporary asWednesday's decision failed to address concerns over the capitalhole at Anglo and markets might have to wait until October togain clarity on the amount of money the government's plan wouldcost the exchequer.
Analysts have also cautioned that Anglo Irish, while it haspunched a massive hole in Irish finances, is ultimately aone-off cost whereas the country's budget deficit, currently thehighest in the European Union, is a recurring problem.
Ireland is planning to squeeze the equivalent of 4.5 percentof GDP in fiscal savings over 2011-2014 to get it back undercontrol but the International Monetary Fund (IMF) has said thisis over-optimistic and they will instead need to making savingsequivalent to 6.5 percent of GDP in that period.
Under pressure from unions, the government has pledged notto cut any more from public sector wages nor cut jobs, narrowingits fiscal choices ahead of its 2011 budget, to be unveiled onDec. 7.
Some sort of clarity regarding Anglo should make life alittle easier for other Irish banks whose shares have fallenover the past two weeks as the market sought certainty over thefuture of their former competitor.
However each of the country's main lenders face challengesof their own. Bank of Ireland, fully recapitalised after raisingaround 3 billion euros earlier this year, plans to wean itselfcautiously from state support and is likely to issue its firstpublic bond after a six month-plus hiatus in the coming weeks.
Fellow minority state-owned lender Allied Irish Banks is upagainst the clock as it seeks to raise 7.4 billion euros incapital before the end of the year. Ireland's second biggestbank by market value is aiming to sell its overseas assets bythe end of September and raise more capital in the fourthquarter but has yet to detail either.
Prime Minister Brian Cowen's Fianna Fail party, whichremained hugely unpopular throughout Ireland's deep recession,originally intended to keep part of Anglo open but that stuck inthe gut of an electorate sickened at having to shell out 25billion euros for its reckless property lending while facing yetanother round of tax hikes and spending cuts.
While winding Anglo down will come as a relief to voters, itwill do little to change analysts minds that parliamentaryelections are likely to take place before the 2012 due date.Some say Ireland's shaky coalition, which has to rely on supportfrom independents, could fall at any time.
Nor is it likely to turn the government's fortunes around.Fianna Fail fell into third place behind opposition Fine Gaeland Labour in recent opinion polls while Cowen's popularityrating is on the floor. Those opposition parties have criticisedthe government for doing a u-turn on Anglo, something that willhurt its credibility at home.
(Editing by Carmel Crimmins; Editing by Ron Askew)