EU-IMF troika says State has met all bailout targets

The troika of the EU, IMF and ECB has said the Government has met the terms of the €67.5 billion bailout programme so far but that the country faces “considerable challenges” and must implement the policy measures required.

Despite meeting targets, a number of deadlines for the introduction of new legislation and plans for the banking sector have been deferred, and no further developments on plans to sell State assets have been unveiled.

Legislation to reform the personal insolvency regime and a restructuring plan for Irish Life and Permanent have been deferred until the end of April, while the recapitalisation of Irish Life and Permanent would not be completed until the end of June, the Government said.

Among the challenges facing the Government which the troika highlighted were the weaknesses of domestic demand, high unemployment and an economic slowdown in some of Ireland’s main trading partners.

Due to these factors the troika said growth forecasts for the Irish economy had been cut from 1 per cent to 0.5 per cent – just over a third of the Government’s forecast. Despite this, the troika still expects the Government to meet the 8.6 per cent budget deficit for 2012.

Commission official Istvan Szekely said the troika “don’t see any reason” for further budgetary measures given the weaker economic outlook.

The Government said it has made significant progress with the troika on the key issues of the €30.6 billion of promissory notes, or State IOUs, which are being used to fund the cost of nationalised lenders Anglo Irish Bank and Irish Nationwide Building Society, and the sale of State assets.

The Minister for Finance Michael Noonan and the Minister for Public Expenditure Brendan Howlin said Ireland met all its targets, some 70 in all, for 2012 by a "significant margin".

Mr Noonan told a press conference to mark the conclusion of the latest 10-day review of the bailout programme that EU, ECB and IMF officials had agreed to seek a common policy by the end of February on reducing the cost of Anglo and Irish Nationwide, and substituting the promissory notes.

Mr Noonan said a position paper would be prepared by the troika on changing the structure of the promissory notes but this would require political approval from the 27 EU leaders.

"It has moved. I am not saying we are successful by any manner or means,” he said. "Rather than the proposition being an Irish Government proposal, it will move to being a proposal coming from senior people representing the troika."

At a later press conference, ECB official Klaus Masuch said the troika was working on finding “technical solutions which are in line with our framework”.

The State issued the notes to fund the banks’ losses over a prolonged period at an additional cost of €17 billion in interest to the State.

Mr Noonan said Irish Life and Permanent was “the last bit of banking jigsaw” to be resolved with a restructuring plan.

Mr Howlin said that the troika had moved from a position where it initially opposed any of funds from the sale of State assets being used for job creation and only to reduce the country’s debts to a position where it agreed that a portion could be used to create employment.

The Commission refused to be drawn on the extent of cash proceeds that would be used for job creation. Mr Szekely said plans had to be finalised about how the Government could use cash from the sale of state assets.

“When we see the plans we will encourage the authorities to be ambitious. Once we see an ambitious programme there then we can sit down and discuss matters.”

Mr Howlin would not be drawn on which State assets would be sold or if the proceeds from the sales would exceed the €2 billion agreed in the Programme for Government.

There would be no firesales, nor would there be any pressure on the Government to sell assets quickly, he said.

The Commission said asset sales were aimed at improving productivity and growth first, and then at raising revenue, but that they would be sold at “fair value” so that “precious” public money would not be wasted.

The ECB again ruled out forcing losses on senior unsecured and unguaranteed bondholders at the former Anglo Irish Bank as it would damage confidence in the Irish banking system and could be “very costly”. The bank is due to repay a €1.25 billion senior unsecured unguaranteed bond next Wednesday.

Mr Noonan said the fiscal consolidation targets had been met by a significant margin, and that it came in tandem with the first return to growth in 2011 for three years.

The troika said the Government had delivered a budget deficit of 10 per cent for 2011 which was significantly below programme targets. Budgetary measures of 3.5 per cent of GDP had reduced the deficit, despite weaker domestic demand.

For this year the budget a 2.75 per cent reduction is the target to lower the overall deficit to 8.6 per cent, as part of a goal to bring the deficit to 3 per cent of GDP by 2015.

The reform of personal insolvency legislation has also been delayed until the end of April. He denied there was any conflict between him and Minister for Justice Alan Shatter on the Bill. He said the new law had been agreed in principle but that it was a very technical and complex piece of legislation.

Asked would domestic mortgage debt be included, in addition to the more general reform of bankruptcy laws, he said holders of all debt would be given a choice of pursuing a judicial route or a non-judicial solution.

Mr Noonan also said that the PCAR stress-testing of the banks would be put back from March to November to coincide with similar exercises taking place throughout Europe.

He disclosed there were sensitivities surround the remaining €5 billion in the National Pension Reserve Fund, as fair as the three bodies overseeing the bailout package were concerned.

He said in some sense, they regarded the monies as "collateral" for their loans, indicating that the money may be locked from being used during the four-year term of the bailout programme.

Asked about the attitude of Irish people to the bailout programme, Mr Szekely said that he had received emails from the public and that “Irish people are actually very skilful at finding my email address”.

Irish people increasingly realised that the programme is there to help the public and reduce their costs, he said.

“I am not denying the social consequences of this programme and the difficulties involved,” he said. “We are fully committed to making further steps if necessary.”

The conclusion of the latest review allows the Government to drawn a further €3.2 billion from the IMF on the €22.5 billion loan facility to the country and €6.5 billion of the €45 billion loan from the EU to pay for the cost of running the country.

The next troika review of the bailout programme takes place in April.