Troika Statement 14th July

Scofflaw

Statement by the EC, ECB, and IMF on the Review Mission to Ireland

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin during July 6-14 for the regular quarterly review of the government’s economic programme. The objectives of the programme are to address financial sector weaknesses and to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation, while protecting the poor and most vulnerable.

The teams’ assessment is that the programme remains on track and is well financed. The authorities have continued to steadfastly implement programme policies. Tensions in sovereign bond markets have escalated during the visit, but programme financing is cushioning the impact of this shock on the Irish economy and public finances. Continued strong policy implementation will be important to limit potential contagion effects.

Recent developments are consistent with a return to positive growth in 2011. Real GDP stabilized in the year to the first quarter, and modest growth is expected in 2011. Strong exports, aided by progress in recovering lost competitiveness, are expected to continue driving the recovery although domestic demand will continue to contract. Growth is expected to strengthen next year and beyond as the recovery broadens and spills over into the labor market.

Reforms are being implemented to restore the healthy functioning of the banking sector. Restructuring of banks is ahead of schedule, with the merger of Allied Irish Banks with EBS Building Society, and Anglo Irish Bank with INBS, already completed. Renewal of the boards and management of banks is underway, and the recapitalization of domestically owned banks is expected be completed by end July, with the fiscal cost reduced by burdensharing with subordinated debt holders. Deleveraging of banks is making progress, and will deliver a smaller more robust system while avoiding fire sales.

On theÂ*fiscal front, the cumulative deficit for the first six months of the year was well below the programme ceiling. The budget deficit is projected to be below 10½ percent of GDP in 2011. The Government has established the Irish Fiscal Advisory Council to provide an independent assessment of public finances. Later this year, the authorities will publish a mediumÂ*term fiscal consolidation plan for 2012 toÂ*2015, outlining the revenue and expenditure adjustment consistent with reaching a deficit target of below 3 percent of GDP in 2015, drawing on the findings of the ongoing Comprehensive Review of Expenditure.

The authorities are advancing targeted structural reforms. To boost job creation, the Government is working with the social partners to develop reform plans for sectoral wage agreements, which cover sectors where unemployment tends to be high. The government also plans to introduce legislative changes to remove restrictions on trade and competition in sheltered sectors, including the legal profession, medical services and the pharmacy profession, in order to lower costs and boost purchasing power.

The government’s programme is supported by loans from the European Union and EU member states amounting to €45.0 billion and a €22.5 billion Extended Fund Facility with the IMF. Ireland’s contribution is €17.5 billion. Approval of the conclusion of this review will allow the disbursement of €4.0 billion in this quarter (€2.5 billion by the EU, and €1.5 billion by the IMF). Additional resources in the order of €0.5 billion are also scheduled to be disbursed under the UK bilateral loan in the third quarter. The mission for the next program review is scheduled for October 2011.

Fairly positive review. The press conference is being webcast in various places, such as the Commission Representation's website and RTE.

cordially,
Scofflaw

Scofflaw

Hmm. Additional bank recap money (the €16bn left over out of the €35bn) can be used to fund the deficit.

The view remains that Greek debt is unsustainable, ours isn't.

There's no question, and they wish to avoid any impression, that the proposed ESM will invariably involve private sector burden-sharing. That's particular to Greece.

More @ https://twitter.com/#!/namawinelake

cordially,
Scofflaw

ardmacha

Hmm. Additional bank recap money (the €16bn left over out of the €35bn) can be used to fund the deficit.

Can we now buy bonds in the secondary market with this money?

Scofflaw

ardmacha wrote: »

Can we now buy bonds in the secondary market with this money?

I guess so, but apparently we'd only be able to buy a few scraps:

Can we infer that these are true price changes when each day only 2 out of a 1000 bonds are traded? It will also be interesting to see what impact, if any, the downgrade to junk status by Moody’s has on trading volumes.

Based on yesterday’s closing price this bond with a nominal issue of €11.8 billion has a market value of €8.9 billion. We could reduce the amount of debt owed on this bond by 25% if we could buy all the bonds in issue at the current market price. Current trading volumes suggest that we would find very few bonds to buy.

cordially,
Scofflaw

ardmacha

If we are paying 5% and the bonds yield 10%+ then I'd say it might be a good plan, although there may not be enough bonds out there to make a difference.

Scofflaw

ardmacha wrote: »

If we are paying 5% and the bonds yield 10%+ then I'd say it might be a good plan, although there may not be enough bonds out there to make a difference.

In our case, the idea would be to buy back government debt at a discount, rather than continue to hold it. As per the quoted post, you could in theory turn €11.8bn of debt into €8.9bn - if you could buy 100% of the issue in question. Unfortunately, trading volumes suggest you'd only be able to buy up maybe 1%, which means turning €118m of debt into €89m. People are holding Irish debt, not trading it.

cordially,
Scofflaw

ei.sdraob

Scofflaw wrote: »

People are holding Irish debt, not trading it.

Says who? as is discussed in the article by @namawinelake you linked to earlier yourself another possibility is that there are no willing buyers, If no one is willing to buy the bond in your hand the value of it goes down, and that is exactly what is happening.

Scofflaw

ei.sdraob wrote: »

Says who? as is discussed in the article by @namawinelake you linked to earlier yourself another possibility is that there are no willing buyers, If no one is willing to buy the bond in your hand the value of it goes down, and that is exactly what is happening.

Yes, that's true - but I did assume people would pick that up from the article. If it's the lack of buyers, then we would be able to pick up more - although the entry of the Irish government would obviously change the dynamic.

cordially,
Scofflaw