European leaders agree €85bn bailout for Ireland

This cash will be split twofold: €35bn will go into the Irish banking system and the remaining €50bn will be used by the Irish government to cover its operational costs.

Irish Prime Minister Brian Cowen says: "This program is absolutely essential for the country. We have carefully considered all available policy options. [It is the] best available deal for Ireland".

Speaking at a press conference in Dublin, Cowen says that the bailout will provide "vital time and space to successfully and conclusively address the problems we've been dealing with since the financial crisis began."

€10bn of the €35bn set aside for the banks will be guzzled up to boost their capital reserves immediately. The other €25bn will remain in reserve should the need arise for a further cash injection.

Interest payments on state debt will account for more than 20% of future tax revenues. However, to ensure that Ireland remains an attractive place to do business for small businesses and international firms, the 12.5% rate for corporation tax will not be increased.

This is a smart move. Corporation tax raised about €3.9bn (£3.2bn) in 2009, which accounts for about 10% of Irish government revenue. This is a revenue stream that the Ireland cannot afford to put in jeopardy.

This bailout assures a much rosier future for Ireland's economy. As the BBC's business editor Robert Peston writes in his blog: "The banks are now a real liability of the state - and the better news for the Irish government this morning is that the share prices of Bank of Ireland and Allied Irish Bank have risen."

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