Ireland said its four-year austerity plan would not be significantly changed in return for an EU/IMF bailout package to salvage its shattered banks, which elicited only modest relief in financial markets on Monday.
A top euro zone official said the first loans could flow in January but European shares were flat and the euro only a little higher in response to an outline rescue deal meant to stop contagion spreading.
Economists doubted whether the second euro zone rescue in six months, after Greece, would be sufficient to stop markets targeting fellow straggler Portugal, or to prevent heavily indebted European states defaulting in the longer run.
Moody's Investors Service said a capital injection would ease short-term funding problems for Irish banks but said a "multi-notch" downgrade of Ireland's credit rating, still leaving it in the investment grade category, was now the most likely outcome.
But euro zone policymakers expressed optimism.
"We guess that the first money shipment could be realised in the course of January," chairman of euro zone finance ministers Jean-Claude Juncker told reporters, adding that he saw no immediate risk of contagion to other euro zone members.
European and IMF officials began thrashing out details of the loans — expected to total 80 to 90 bln euros — on Monday while the government put finishing touches to a drastic 15 bln euros austerity plan.
Prime Minister Brian Cowen said the four-year programme, to be announced on Wednesday, would involve 10 bln euros in public spending cuts and 5 bln euros in tax rises, on top of two years of harsh austerity and recession already endured.
The government is expected to cut the minimum wage, slash social welfare spending, reduce the number of public employees and add a new property tax and higher income taxes.
Finance Minister Brian Lenihan said the European Union and IMF had seen the outline of Ireland's four-year plan and would not demand significant changes.
"I think it is unlikely that they will request changes in the plan," Lenihan told state broadcaster RTE.
In an effort to rekindle economic growth, ministers said they would preserve the ultra-low 12.5% corporate tax rate which is a magnet for foreign investment but an irritant to many EU partners which see it as a form of unfair competition.
The corporation tax issue has become the focus of Irish concerns about a loss of national sovereignty in a nation which fought less than a century ago to win independence from Britain.
While the rescue package is expected to be less than the 110 bln euros provided for Greece in May, it will be larger as a proportion of national wealth and in per capita terms.
CONTAGION?
Portugal, next in capital markets' crosshairs, rushed out a statement saying Sunday's agreement by EU finance ministers to grant Ireland assistance should restore investors' confidence in the 16-nation single currency area.
Financial market professionals and economists said the Irish bailout might bring short-term relief but voiced doubts about whether it would prevent Portugal being forced to seek assistance eventually.
"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.
But German Finance Minister Wolfgang Schaeuble played down the risk of market problems spreading to other high-deficit countries. "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.
Irish 10-year government bond yields fell more than 20 basis points to 8.20%, narrowing the spread over Bunds to 549 bps.
The cost of insuring Irish debt against default fell to 484 basis points from 507 at Friday's New York close, according to CMA data. This reflects a 33.8% implied probability of a default within five years compared with 35.2% on Friday.
Germany has insisted the EU must create a mechanism for an orderly restructuring of stricken countries' debts, with private bondholders sharing the pain with taxpayers, as a condition for making the euro zone's three-year safety net permanent. But EU ministers have said that will not apply to existing bonds.
However one bond market investor, speaking on condition of anonymity, said: "We just cannot see how bail-outs without debt reduction can work."
A plan to restructure Ireland's banks, which had to be rescued by the state after a property boom fuelled by reckless lending collapsed, will be a central plank of the broader international aid package.
Lenihan said Ireland's banks would be shrunk to focus on domestic business and consumer lending under the EU-IMF scheme, which could enable Dublin to return to bond markets quickly.
Britain, which is not part of the euro zone, said it would offer Dublin bilateral assistance on top of its share in EU and IMF aid. Finance minister George Osborne said London's contribution could be about 7 ln pounds.
British and German banks are the biggest creditors of Ireland's stricken banks, according to official data.
Non-euro Sweden said it would offer up to 1.5 bln euros.
Calls are mounting for the government to stand down over its handling of the crisis and the main opposition party said on Sunday it would consider a vote of no-confidence in the government, possibly before a December 7 budget.
