(Reuters) – The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle the country’s banking and budget crisis in a move aimed at protecting Europe’s wider financial stability.

Ireland, facing widespread public anger over its handling of the crisis, formally requested the aid on Sunday evening.

“The European authorities have agreed to our request,” said Prime Minister Brian Cowen. “I expect that agreement to be finalized shortly, within the next few weeks.”

The size of the rescue by European authorities and the International Monetary Fund has yet to be negotiated but is likely to be smaller than Greece’s 110 billion euro ($150 billion) bailout last May.

“I would say we are talking about 80-90 billion euros,” a senior EU source said, adding that this sum would include money to support the Irish banking sector.

Economic and Monetary Affairs Commissioner Olli Rehn said experts from European Commission, European Central Bank and IMF would prepare a three-year package of loans by the end of the month.

“Providing assistance to Ireland is warranted to safeguard the financial stability in Europe,” Rehn told Reuters.

“The program under preparation will address both the fiscal challenges of the Irish economy and the potential future capital needs of the banking sector in a decisive manner.”

IMF managing director Dominique Strauss-Kahn said Commission, ECB and IMF officials who are already in Ireland would begin swift discussions on a multiyear loan.

Britain, which is not part of the euro zone, said it would contribute about 7 billion pounds in aid.

EU policymakers have feared that Ireland’s problems might spread to other euro zone members with large budget deficits such as Spain and Portugal, threatening a systemic crisis.

In Berlin, German Finance Minister Wolfgang Schaeuble played down this risk. “If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects,” he told ZDF television.

However, some economists were less optimistic. “I think it means Portugal is next (to request help). I don’t know if it will happen before the end of the year or after, but it’s almost inevitable now,” said Filipe Garcia at Informacao de Mercados Financeiros in Porto.

“I don’t know what the markets will say tomorrow,” said Pedro Schwartz at San Pablo University in Madrid. “If Portugal is forced to take a bailout then they’ll turn their attention to Spain … I think Spain is differentiated but they’re not out of the woods. And the euro in general is not out of the woods.”

Read more: http://www.reuters.com/article/idUSTRE6AC1JP20101121?pageNumber=2

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