Wednesday 22 November 2017

EC welcomes coalition pledges

But ECB and IMF fail to publicly endorse new Programme for Government

Sarah Collins and Laura Noonan

THE European Commission yesterday welcomed the broad tax and spending pledges made in the new Programme for Government.

But the ECB declined to publicly endorse the programme, or to comment on whether it would be willing to support measures to replace the €50bn in "emergency" cash it has pumped into the banks with a special "medium term" loan.

The IMF, which is funding some €22.5bn of the bailout, also failed to return several requests for comments on the programme. The international trio have previously issued joint statements on the steps taken by Ireland, but the European Commission is so far the only one to publicly comment on the programme announced on Sunday night.

A spokeswoman for EU economics chief Olli Rehn said the commission -- which is supporting close to two-thirds of Ireland's €67.5bn bailout fund -- "welcomed" the "strong commitment to the key economic policy goals" outlined in the bailout.

"We will obviously be studying the programme, or draft programme, in closer detail and we will be starting discussions also with Ireland in this and other aspects," she added.

While the ECB isn't contributing bailout funds to Ireland, it will have a major say in the future of Ireland's banks since they are effectively being kept on life support by €150bn in ECB loans.

The massive sums include about €50bn of "emergency" lending from the ECB.

The Programme for Government says the authorities will "seek to replace emergency lending to our banks with medium-term, affordable, official financing in a way that can restore confidence among other potential lenders in the liquidity positions (cash flow) of our banks".

The new Government has not explained where it will find the €50bn to replace the emergency lending currently in the banks.

It is widely believed it will ask the ECB to change the terms of the €50bn emergency loan to make it cheaper.

It is understood that the Government would face an uphill struggle to convince the ECB to go along with this plan, since it would mark a major departure from the ECB's established approach to the Irish crisis.

The ECB has shied away from creating special loans for individual countries in the past and ECB President Jean-Claude Trichet has also repeatedly stressed that Ireland needs to "follow the plan" as it currently stands -- a view he expressed as recently as last Thursday.

Irish banks are also believed to be paying an interest rate of just 2.75pc on the emergency lending -- higher than the 1pc interest rate offered by the ECB's main lending facility but well below the 5.8pc interest rate on Ireland's bailout.

The Programme for Government doesn't lay out why the Government wants to replace the emergency lending with the new type of lending, beyond saying that it could make it easier for Irish banks to ultimately get cash from the market.

Meanwhile, prospective Taoiseach Enda Kenny will travel to Brussels this week having promised that he will push to renegotiate the interest rate on €45bn worth of EU loans.

Irish Independent

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