It's an €85bn deal -- now it's up to us
EU warns we have to toe line on economy
Published 29/11/2010 | 05:00
THE EU last night finally signed off on our €85bn bailout -- with a clear warning that we have to turn our economy around in four years.
The massive cash injection -- which Taoiseach Brian Cowen said would cost an average of 5.8pc in interest -- is designed to underpin our public finances and restructure the banks.
It comes with a number of strict economic guidelines and the Government will face a grilling on these targets every three months.
Key areas under scrutiny include:
- Meeting €15bn in Budget spending cuts and tax increases.
- Massive restructuring of the main banks -- and a shrinking of the banking system.
- Banks must draw up a list of potential assets to dispose of.
- A clampdown on public-sector pay.
- An extra year, until 2015, to bring our deficit to within the EU limit of 3pc of GDP
The loans will take 10 years to repay and will mean the Government may not have to go to the international markets to borrow money for the next three years.
Mr Cowen defended the Government's actions and insisted the bailout deal struck with the EU and IMF is essential for Ireland.
Significantly, the bailout does not contain any effort to default on bondholders who loaned money to the country.
Mr Cowen said the Government had considered "all available policy options" -- including burning subordinated bank bondholders -- when striking a deal with negotiators over the past week-and-a-half.
And he said Ireland "was not an irresponsible country" and he had not considered a debt default.
"We are a country that recognises its international obligations as a member of the euro area," Mr Cowen said.
The bailout comes a day after 50,000 people marched in Dublin to protest against the Government's cutbacks.
But the EU and IMF also decided that we first must run down our own cash stockpile and deploy the previously off-limits National Pension Reserve Fund (NPRF) in the bailout.
Until now, Irish and EU law had made it illegal for Ireland to use its pension fund to cover current expenditures.
The surprise accounting move means the country will contribute €17.5bn to our own rescue -- €12.5bn from the pension fund and €5bn from cash reserves.
The rescue deal, approved by finance ministers at an emergency meeting in Brussels, underscores Europe's struggle to contain its spreading debt crisis.
All eyes will be on the markets this morning as the fear is that with Greece and now Ireland shored up, speculative traders will target the bloc's other weak fiscal links, particularly Portugal.
To shore up longer-term confidence in the euro, EU finance ministers also agreed on a permanent mechanism that from 2013 would allow a country to restructure its debts once it has been deemed insolvent.
Luxembourg's Jean-Claude Juncker, the head of the eurogroup -- the 16 countries using the euro -- said private creditors would be forced to take losses only if ministers agreed unanimously that the country had run out of money.
He said if a country is merely facing a crisis of liquidity, it would get financial help similar to the bailout for Ireland.
European Central Bank chief Jean-Claude Trichet said making senior bondholders -- chiefly banks that loan to other banks -- suffer losses when a nation's finances head towards bankruptcy would be "fully consistent" with existing IMF policies.
The country will be paying back its loans from the International Monetary Fund for a decade, the institution's European boss said last night.
During this time, strict conditions will be applied to the country with firm targets being set and reviews every three months, IMF European Department deputy director Ajai Chopra revealed.
Mr Chopra praised the Irish authorities for being very "proactive" in finding solutions to get the economy back on track with stronger growth and a healthier banking system.
"This is a programme that is largely designed by the Irish authorities. We are augmenting what they did already. And the thing that has impressed me most in this regard is the sense of common purpose."
Finance Minister Brian Lenihan said the possibility of a widespread mortgage crisis was discussed "in detail" during the negotiations.