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Irish crisis: What's it all about?

From Jim Boulden, CNN
  • Ireland bailed out its struggling banks, putting the government under intense budget pressure
  • Dublin insists it doesn't need help, but Europe thinks it does
  • A bail out could bring the Irish government down, but it could also help stocks rise
  • American exports to Europe could rise if a bail out strengthens the euro

Dublin, Ireland (CNN) -- Ireland and the European Union are engaged in a strange and increasingly public tug of war. Dublin insists that it doesn't need money from abroad to stay afloat despite a crisis in its banking sector, while the European Union is already discussing a possible bail out.

What's the problem?

Ireland needs funds to shore up its balance sheets. The government pumped billions of euros into Irish banks to keep them afloat, effectively nationalizing most of them. The European Central Bank is lending money to Irish banks because other banks won't. And lately people and companies have been pulling funds out of the banks. This can't go on.

What would international loans or loan guarantees mean for the average Irish citizen?

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Analysts say a bailout is not likely to affect Irish citizens directly but would have beneficial effects nonetheless. "All it's going to do is keep the banks going," said Peter Morici of the State University of New York at Albany. "It's not going to change the objective conditions for the average Irish people." But Allan Timmermann, who holds an endowed chair of finance at the University of California San Diego, said a bail out would make life easier for ordinary folks because the aid might lessen the severity of service cuts the government will need to make. "If you imagine that there's no bail out, the measures that Ireland would have to take in terms of cutbacks would have to be much more drastic."

What would it mean for people across Europe?

It means their tax dollars going to pay for yet another bank bailout plan, after the European Union bailed out Greece to the tune of 110 billion euros (currently $150 billion) in May.

But it also means the markets might calm down, taking pressure off Spain and Portugal, which are also facing budget problems. Bringing the yield on Portuguese and Spanish government bonds back to normal levels would mean they pay less on interest and more, hopefully, toward reducing their own deficits.

Would it mean anything for Americans?

The stock market might regain what it has lost in the past two weeks over "fears of European recovery." It could also mean the dollar starts to fall against the euro, which might boost American exports to Europe, since American good would be cheaper for euro-spenders to buy.

Who would pay for an Irish bail out?

After Greece took European and International Monetary Fund loans, European Union countries pledged nearly 1 trillion dollars for any country that can't pay its bills by raising funds through normal debt markets. Ireland does not have that problem, but it's clear the EU would allow Ireland to pump loans into its banks (given the government controls them now anyway). If and when Ireland asks for help, EU countries pay according to their size: Germany the most and Malta the least.

CNN's Arthur Brice contributed to this report.