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EU/IMF rescue package guide.

  • 16-02-2011 5:39pm
    #1
    TalkToEU: John
    Closed Accounts Posts: 72 ✭✭


    Lately, we've been receiving a lot of questions via our website and social media channels about the EU/IMF rescue package Ireland is receiving.

    Driven by the coverage of the election it has been a much discussed topic and something people have been asking for more information about. Set out below is a quick breakdown of the main questions with further information. It might come in handy when the canvassers call to your door.


    Interest rates
    • The 85 billion financial rescue package to Ireland is composed of: 22.5 EFSM (from EU27 states); 17.7 EFSF (from eurozone only); 22.5 from IMF; 4.8 from bilateral loans; 17.5 Irish pension fund.
    • The EFSF and EFSM interest rate formula was agreed by all the MS heads of government (including Ireland) in Council in May 2010. It was not decided on bilaterally between Ireland and the Commission and ECB last November.
    • The formula was in fact based on the design of IMF rescue plans to States in difficulty.
    • Any change to the interest rate charged on the EU/ECB portion must be agreed unanimously by the Member State heads of State and government in Council, just as the present rate of interest was.

    Renegotiation of the programme
    • The original agreement set out that the main elements or goalposts of the package are fixed and should not be open to renegotiation
    • There is a review of the programme every quarter when the framework and financing needs are reassessed.
    • The programme allows for some re-prioritisation of measures if circumstances change (e.g. growth rates, deficit levels).
    • The measures beyond 2011 are not set out in detail which leaves some room for discussion in the later years.
    • Any changes must take account of growth, competitiveness and sustainability of public finances.

    The need for a rescue package
    • The IMF and the EU/ECB responded to a request from the Irish government on 21 November to put together a financial assistance package.
    • The Irish State requested financial assistance because of the very large difference between the State’s revenue and its expenditure (€ 18.7 billion in 2010) and the great difficulty it was having in accessing funds on the international money markets.
    • Of the € 85 billion package, 50 billion is for public finance and 35 billion is banking assistance (of which half is the 17.5 billion from Ireland’s pension fund).

    The causes of the crisis
    • Ireland’s sovereign debt crisis is not due to membership of the eurozone. Some non-eurozone governments have also had credit-fuelled booms and recessions, followed by recourse to the IMF (Hungary, Latvia, Iceland). Other non-eurozone countries have serious government deficits requiring austerity measures (e.g.UK).
    • Governance of the eurozone is evolving in the light of the international crisis.

    Corporation tax
    • Tax rates are a Member State competence. At the Irish government’s request, this was explicitly confirmed in the Treaty of Lisbon.
    • Any agreement on taxation can only be arrived at unanimously by heads of government in Council.
    • There are varying views between Member States on taxation matters.
    • Ireland’s corporation tax is not the lowest in the EU. Three other Member States have a lower rate (Hungary, Cyprus, Bulgaria).

    Bank bondholders
    • “Burning” all the bondholders would be open to legal challenges.
    • Involving senior bondholders would not restore confidence in the Irish banks, it risks doing the opposite.
    • Unilateral action could see Ireland cut off completely from the international credit markets.
    • Subordinate bondholders on the other hand have had to share some of the cost.
    • Holders of shares in Irish banks have suffered massive losses already and these are spread all over Europe
    Ireland’s deficit is still above 10% – does this mean that measures taken are not working?
    • There has been impressive consolidation (i.e. closing the gap between spending and revenue) since 2008.
    • The Irish economy is showing hopeful signs, for instance in export figures and gains in competitiveness.
    • However, there remain big challenges: low growth, a damaged banking system, and large amounts of debt.


Comments

  • #2
    SkepticOne
    Closed Accounts Posts: 6,718 ✭✭✭SkepticOne


    Even though it is part of the official numbers I don't think we should add 17.5 billion of Ireland's reserves to the 67.5 billion raised as part of the bailout. The 17.5 billion was raised separately by Ireland prior to the bailout.

    The total bailout figure should be 67 billion. If as part of the deal Ireland has to commit some of its own funds for whatever purpose then that shouldn't be considered part of the bailout but rather part of the conditions in order to get the bailout (e.g. along with things like reductions in public spending etc.). To simply add it on is misleading, imo.


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