Irish Government Statement On EU - IMF Programme for Ireland: Interest Rate To Be 5.8%
Announcement of joint EU - IMF Programme for Ireland - Irish Gov Statement
The Government today agreed in principle to the provision of €85 billion
of financial support to Ireland by Member States of the European Union
through the European Financial Stability Fund (EFSF) and the European
Financial Stability Mechanism; bilateral loans from the UK, Sweden and
Denmark; and the International Monetary Fund’s (IMF) Extended Fund
Facility (EFF) on the basis of specified conditions.
The State’s contribution to the €85 billion facility will be €17½
billion, which will come from the National Pension Reserve Fund (NPRF)
and other domestic cash resources. This means that the extent of the
external assistance will be reduced to €67½ billion.
The purpose of the external financial support is to return our economy
to sustainable growth and to ensure that we have a properly functioning
healthy banking system.
The external support will be broken down as follows: €22½ billion from
the European Financial Stability Mechanism (EFSM); €22½ billion from the
International Monetary Fund (IMF); and €22½ billion from the European
Financial Stability Fund (EFSF) and bilateral loans. The bilateral
loans will be subject to the same conditionality as provided by the
The facility will include up to €35 billion to support the banking
system; €10 billion for the immediate recapitalisation and the remaining
€25 billion will be provided on a contingency basis. Up to €50 billion
to cover the financing of the State. The funds in the facility will be
drawn down as necessary, although the amount will depend on the capital
requirements of the financial system and NTMA bond issuances during the
If drawn down in total today, the combined annual average interest rate
would be of the order of 5.8% per annum. The rate will vary according
to the timing of the drawdown and market conditions.
The assistance of our EU partners and the IMF has been required because
of the present high yields on Irish bonds, which have curtailed the
State’s ability to borrow. Without this external support, the State
would not be able to raise the funds required to pay for key public
services for our citizens and to provide a functioning banking system to
support economic activity. This support is also needed to safeguard
financial stability in the euro area and the EU as a whole.
Programme for Support
The Programme for Support has been agreed with the EU Commission and the
International Monetary Fund, in liaison with the European Central Bank.
The Programme builds on the bank rescue policies that have been
implemented by the Irish Government over the past two and a half years
and on the recently announced National Recovery Plan. Details of the
measures are set out in the accompanying Notes for Editors.
The Programme lays out a detailed timetable for the implementation of the measures contained in the National Recovery Plan.
The conditions governing the Programme will be set out in the Memorandum
of Understanding and the Government will work closely with the various
bodies to ensure that these conditions are met. The funding will be
provided in quarterly tranches on the achievement of agreed quarterly
The Programme has two parts – the first part deals with bank
restructuring and reorganisation and the second part deals with fiscal
policy and structural reform. The requirement for quarterly progress
reports covers both parts of the programme. When the documentation on
the Programme is finalised, it will be laid before the Houses of the
Bank Restructuring and Reorganisation
The Programme for the Recovery of the Banking System will be an
intensification of the measures already adopted by the Government. The
programme provides for a fundamental downsizing and reorganisation of
the banking sector so it is proportionate to the size of the economy.
It will be capitalised to the highest international standards, and in a
position to return to normal market sources of funding.
Fiscal Policy and Structural Reform
The Ecofin has acknowledged the EU Commission’s analysis that a further
year may be required to achieve the 3% deficit target. This analysis
is based on a more cautious growth outlook in 2011 and 2012 and the need
to service the cost of additional bank recapitalisations envisaged
under the programme. The Council has today extended the time frame by 1
year to 2015.
The Programme endorses the Irish Government’s budgetary adjustment Plan
of €15 billion over the next four years, and the commitment for a
substantial €6 billion frontloading of this plan in 2011. The details
of the Programme closely reflects the key objectives set out in the
National Recovery Plan published last week. The adjustment will be made
up of €10 billion in expenditure savings and €5 billion in taxes.
The Programme endorses the structural reforms contained in the Plan
which will underpin a return to sustainable economic growth over the
The Government welcomes the support shown to Ireland by our Eurozone
partners and in particular by the United Kingdom, Sweden and Denmark who
have expressed their willingness to offer bilateral assistance. The
Government also welcomes the assistance of the IMF.
As part of the Programme, Ireland will discontinue its financial
assistance to the Loan Facility to Greece. This commitment would have
amounted to approximately €1 billion up to the period to mid-2013.