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EU-IMF Programme of Support Issues

Dáil Éireann Debate, Wednesday - 15 May 2013

Wednesday, 15 May 2013

Questions (130)

Finian McGrath

Question:

130. Deputy Finian McGrath asked the Minister for Finance if he will deal with the major imbalance in Ireland's contribution to the current Europe wide financial crisis. [23364/13]

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Written answers

As the Deputy will recall the EU-IMF Programme of Financial Support provided funding for essential public services at a time when the State could not access financial markets at reasonable rates. The Government’s commitment to the Programme does not, and has not stopped us from seeking and agreeing changes to aspects of the programme. A series of burden reducing measures were negotiated by the Government and have been put in place since early 2011. First we have achieved a reduction in interest on EFSF and EFSM funds and on bilateral loans. The interest rates on EU funding mechanisms (the EFSF and EFSM) were reduced in 2011 and are now provided at rates close to the cost of funding. The maturities of these loans were extended at the same time. The interest rate reductions for the EFSF and the EFSM have also been reflected in the rates charged on Ireland’s bilateral loans from the UK, Sweden and Denmark. It is estimated that the interest rate reductions on the EU funding mechanisms and the bilateral loans are worth of the order of €9 billion over the initially envisaged 7½ year term of these loans. The positive impact of these changes has been significant as demonstrated by the fact that the average interest rate charged on our programme borrowing at the outset of the programme in 2010 was 5.82 per cent, whereas by end-March 2013, the National Treasury Management Agency has estimated that the all-in fixed euro equivalent cost of loans received under the EU/IMF programme was 3.32 per cent.

Second we have achieved an extension of the maturities of the loans. At the Ecofin and Eurogroup meetings in Dublin in April, EU and Euro-area Finance Ministers agreed in principle, to lengthen the maturities of the EFSF and EFSM loans to Ireland and Portugal by increasing the weighted average maturity of the loans by a further 7 years. The extension will smooth our debt redemption profile and lower our refinancing needs in the post-programme period, improving our long term debt sustainability.

Furthermore in February 2013 the Government successfully replaced the IBRC Promissory notes which had a weighted average life of c.7-8 years with Government Bonds with a weighted average life of c. 34-35 years at a lower funding cost for the State, resulting in significant annual interest savings. The Government have also removed Exceptional Liquidity Assistance and the inherent risk associated with short term borrowings which have to be rolled over on a fortnightly basis and have removed IBRC from the financial landscape.

In addition, there are quarterly reviews of the programme implementation and the Government have used these quarterly reviews to renegotiate various aspects of the programme, these include:

- a reversal in the reduction in the minimum wage;

- an agreement to reinvest proceeds from state asset sales in projects which are of a commercial nature, enhance employment and preserve long term fiscal sustainability;

- the acceptance by the Troika of the measures contained in the Government’s Jobs Initiative;

- the securing of the Troika’s agreement to the replacement of the fiscal adjustment measures incorporated in the original agreement for the 2012-14 period by measures that the Government considers to be more growth- and employment-friendly.

The success of our overall approach to date is illustrated by the NTMA’s highly successful sale of €5 billion in ten year bonds in March. We are now in the final year of our programme of support, and the Government will continue to seek improvements in our programme conditions as appropriate to support a durable and successful exit.

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