AUSTERITY MEASURES:THE GOVERNMENT is prepared to implement further austerity measures above the €15 billion set out in its four-year plan if it fails to meet its targets, it has informed the European Union and the International Monetary Fund.
In letters of intent sent to the IMF and the EU authorities, the Government acknowledges Ireland’s unparalleled economic crisis has forced it to turn to these external bodies for support.
The letters, signed by Minister for Finance Brian Lenihan and Central Bank governor Patrick Honohan, state the Government recognises that “more needs to be done” over and above the litany of harsh corrective measures taken since the crisis erupted in 2008.
It also concedes that the EU and IMF must be consulted in advance to approve further measures required if the Government fails to meet the quarterly targets set out in the programme.
The letter to Dominique Strauss-Kahn, managing director of the IMF, states: “We stand ready to take any corrective actions that may become appropriate . . . As is standard under fund-supported programmes, we will consult with the fund on the adoption of such actions.”
Minister for Finance Brian Lenihan disclosed that he suggested senior bondholders accept their share of the burden of the crisis during negotiations with officials from the IMF, the European Commission and the European Central Bank. However, he said any such move was firmly vetoed by the other side on the basis that it would create a “huge wave of further negative market sentiment”.
“I certainly raised the matter in the course of the negotiations and the unanimous view of the ECB and the commission was and is that no programme would be possible if it were intended by us to dishonour senior debt,” he said.
Mr Lenihan contended Ireland, with its huge dependence on international investors, could not unilaterally renege on senior bondholders against the wishes of the ECB. “Those who think we could do so are living in fantasy land.”
Mr Lenihan said the holders of subordinated bonds in other banks besides Anglo might be asked to share the burden. He said burden-sharing would “have to be considered in other situations where an institution receives substantial and significant State assistance in terms of capital provided to maintain their solvency ratios”.
He said enabling legislation would be announced in the coming weeks. A Government source said last night it was almost certain that subordinated bondholders in AIB and EBS would be asked to take a haircut.
Mr Lenihan stood over the Government’s growth forecast for next year of 1.75 per cent, notwithstanding the commission’s less optimistic forecast of 0.9 per cent.
He said arguments put forward that the interest rate was worse than that for Greece were “patently wrong”, pointing out the higher rates applied for longer loans and that Greece was now seeking Ireland’s terms. “None of the critics explains how we could have secured the funds we require at less cost to the State.”
Attorney General Paul Gallagher had advised the Government that the programme did not represent an international agreement and did not require Dáil approval, he said.
He also defended the use of €17.5 billion from the National Pension Reserve Fund: “How on earth can we ask taxpayers in other countries to contribute to a financial support package while we hold a sovereign wealth fund?”