Troika attacks failure to use bailout for reform
THE troika is highly critical of the Government's failures over the course of the bailout to reform the banking sector, the health system and legal profession.
Members of the bailout team have also hinted at a solution to the loss-making tracker mortgage problem – but it may involve homeowners on the favourable tracker rates paying more.
However, there was no clear suggestion about how such a change would work, given that mortgage contracts cannot be changed.
The troika is also unconcerned about whether the Coalition takes out an overdraft facility when Ireland exits the bailout next month.
While regarding the implementation of the bailout as a success, the supervisors are highly critical of the slow pace of reform in key areas.
A particular gripe was the failure to bring proper financial management structures in the health sector, as well as the lack of a plan to computerise prescriptions and patient details.
The troika has also said that more work needs to be done to reform the health sector and slash the high cost of generic drugs.
And the Government hasn't done enough to overhaul the 'sheltered' sectors of the economy such as the legal profession.
While proposed legislation has been brought before the Dail to slash legal costs, it still hasn't been pushed through.
The Legal Services Bill allows for a new legal regulator which will strip barristers and solicitors of their right to self-regulate and has been greeted with concern by the legal profession.
As the troika wrapped up its final review, a senior European source also warned that everybody needs to "chip in" if a solution can be found to ease the costs to the banks of loss-making tracker mortgages.
This includes borrowers, but sources have stressed it does not mean that mortgage contracts will be rewritten. "I think any realistic solution, any plausible solution requires that everybody chips in," the source said. "Everybody needs to, even the person who has this very favourable loan deal."
It is understood the European Commission wants banks to be more "proactive" in tackling the mortgage arrears crisis and finding a solution that suits the borrower.
About two-fifths of AIB's loan book are tracker mortgages, while Permanent TSB is particularly badly hit, with the loss-making loans making up about €15bn of the bank's loan book.
The bank loses money on the mortgages, which are linked to the official euro rate, even as they are being fully serviced. This is because customers pay less to borrow from Permanent TSB than it pays to borrow on the markets.
European sources have also stressed that it is up to the Government to decide whether it wants to apply for an overdraft facility when it exits the bailout next month.
But it is understood that there is no deadline for applying and that a credit line does not need to be in place when it ends on December 15.
Finance Minister Michael Noonan has held a series of international meetings with the IMF and European leaders – including Eurogroup chair Jeroen Dijsselbloem earlier this week – to assess whether the country should apply for a credit line.
Crucial to any decision will be the level of conditions attached, which could be imposed even if the Government opts to apply for it but not draw down any money.
The Government has said that the decision is "finely balanced" and could go either way, with the National Treasury Management Agency having already built up a €25bn cash buffer which Mr Noonan described as a significant backstop in itself.
"I really don't see any drama here," the European source said.
"You have two good options and you have the option of waiting."
Meanwhile, a report by the National Economic and Social Council, which advises the Taoiseach on economic matters, said that the central challenge of the Government was to increase innovation and accountability.
Good systems for monitoring success and failure and institutional arrangements capable of review and policy adaptation are crucial, it said.
The report focuses on four selected policy areas: banking and finance, enterprise policy, greening the economy and activation.