That Dáil Éireann approves the terms of the agreements detailed below, copies of which were laid before Dáil Éireann on 14 December 2010, and in particular, the Memorandum of Economic and Financial Policies and the Memorandum of Understanding on Specific Economic Policy Conditionality agreed by the Government and which set out the criteria in respect of which a positive evaluation will lead to the disbursement of financial assistance from the European Financial Stabilisation Mechanism, the European Financial Stability Facility and the International Monetary Fund Extended Fund Facility:
EU/IMF Programme of Financial Support:
(i) The Letter of Intent signed by the Minister for Finance and the Governor of the Central Bank and addressed to the President of the Eurogroup, the European Union Presidency, the European Commission and the President of the European Central Bank dated 3 December 2010;
(ii) The Letter of Intent signed by the Minister for Finance and the Governor of the Central Bank and addressed to the International Monetary Fund dated 3 December 2010;
(iii) The Memorandum of Understanding between the European Commission and Ireland comprising:
(a) The Memorandum of Economic and Financial Policies;
(b) The Memorandum of Understanding on Specific Economic Policy Conditionality;
(c) The Technical Memorandum of Understanding.”
This is a difficult time in our country's history, but we must not give in to the sense of hopelessness that pervades much public comment. Across the country, citizens are getting on with their lives, their jobs and their businesses. Those of us in leadership positions have a duty in these difficult times to engender hope and confidence and to point out our problems are resolvable. The national recovery plan and the fiscal and banking measures we are taking have established the essential framework for this country's path back to recovery. We now have the means at our disposal to rectify our economic position and lay the necessary groundwork for sustainable growth. Fundamental to this endeavour is the programme of financial assistance we have agreed with the European Union and the International Monetary Fund, IMF.
This motion proposes Dáil Éireann approves the terms of the agreements which comprise the EU-IMF programme of financial assistance and, in particular, the memorandum of economic and financial policies and the memorandum of understanding agreed by the Government. These set out the standards in respect of which a positive evaluation will lead to the disbursement of financial assistance from the EU and the IMF.
The Government agreed to a total package of €85 billion of financial support to Ireland from EU member states through the European Financial Stability Facility, EFSF, and the European Financial Stabilisation Mechanism, EFSM, the IMF's extended fund facility, EFF, and the bilateral loans from the UK, Sweden and Denmark on the basis of specified conditions.
The EU-IMF programme will include up to €50 billion to cover the day-to-day running costs of the State. Up to €35 billion will support the banking system of which €10 billion will be for immediate recapitalisation and the remaining €25 billion provided on a contingency basis. This €25 billion is being provided to address any potential downside risks that may arise through the course of the programme in our banking system.
The State's contribution to the €85 billion facility will be €17.5 billion, which will come from the National Pensions Reserve Fund, NPRF, and other domestic cash resources. This means the extent of the external assistance will be reduced to €67.5 billion. As set out on numerous occasions, if drawn down in total today, the combined annual average interest rate would be 5.8% per annum. The rate will vary according to the timing of the drawdown and market conditions. The National Treasury Management Agency has issued a technical note on the borrowing costs of the programme.
The purpose of the external financial support is to return our economy to sustainable growth and to ensure we have a properly functioning banking system. The assistance of our EU partners and the IMF is necessary because of the current high yields on Irish bonds, which have curtailed the State's ability to borrow. Without this external support, the State would not be able to raise the funds required to pay for key public services for our citizens and to provide a functioning banking system to support economic activity. This support is also needed to safeguard financial stability in the eurozone and the EU as a whole.
The programme for support was agreed with the European Commission and the IMF, in liaison with the European Central Bank, ECB. The programme builds on the bank-rescue policies that have been implemented by the Government over the past two and a half years and on the national recovery plan announced in November. It lays out a detailed timetable for the implementation of the measures contained in the national recovery plan. In other words, the national recovery plan is effectively embedded in the programme. This is a key point that needs to be emphasised, as some have suggested that control has been taken out of the Government's hands. This is not the case.
The details of the programme are set out in the documents listed in the motion. The key documents that set out the conditionality and the level of monitoring that will be required are the memorandum of understanding on specific economic policy conditionality and the memorandum of economic and financial policies. The proposed support will be provided in quarterly tranches on the achievement of agreed quarterly targets.
The programme has two parts — the first deals with bank restructuring, the second, with fiscal policy and structural reform. The requirement for quarterly progress reports covers both parts of the programme. We have already made good progress on the second part concerning fiscal policy with the implementation of the budget. By the end of the week, we will have made a major step forward with bank restructuring with the enactment of the credit institutions legislation.
The programme for the recovery of the banking system will be an intensification of the measures already adopted by the Government. The programme provides for a fundamental downsizing and re-organisation of the banking sector so that it is proportionate to the size of the economy. It will be capitalised to the highest international standards, and in a position to return to normal market sources of funding. The strong focus in the programme on de-leveraging and downsizing of the banks provides a roadmap for achieving the long-term sustainability and viability of the banking system by aligning the size of bank assets with their capacity to fund on a stable basis.
The next step in this process was taken yesterday with the publication of the Credit Institutions (Stabilisation) Bill 2010 which will be debated later. I propose to have it enacted as a matter of urgency by the Oireachtas by the end of this week. It provides the legislative basis for the reorganisation and restructuring of the banking system as agreed in the joint EU-IMF programme.
The programme endorses the Government's budgetary adjustment plan of €15 billion over the next four years and the substantial €6 billion front-loading of this plan in 2011. The overall adjustment set out by the Government is made up of €10 billion in expenditure savings and €5 billion in taxes. Our plan, based on the latest macroeconomic forecasts of the Department of Finance, envisages the target of having a deficit of under 3% of gross domestic product will be achieved in 2014. However, ECOFIN has acknowledged the EU Commission's analysis that a further year may be required to achieve the 3% deficit target. This analysis is based on a more cautious growth outlook in 2011 and 2012 and the need to service the cost of additional bank recapitalisation envisaged under the programme. The Council has extended the timeframe by one year to 2015 and, while it is not now envisaged as being necessary, it is a welcome measure if growth does not materialise as planned.
The programme endorses the structural reforms contained in the national recovery plan which will underpin a return to sustainable economic growth over the coming years. We welcome the support thrown to Ireland by our EU partners and, in particular, by the United Kingdom, Sweden and Denmark which expressed their willingness to offer bilateral assistance. The Government also welcomes the assistance of the IMF.
Since this crisis began, the objective of the Government's actions has been to return to sustainable economic growth and to protect and create jobs. The programme provides the necessary financial assistance to get us through the difficulties we face. We will emerge from our current difficulties a stronger and fitter economy. Many of our strengths as an economy still remain. We have a well-educated and young workforce, high-quality physical infrastructure, favourable demographics, a pro-enterprise environment and a strong high-technology exporting base. Data available to date point to strong exports growth this year; the Department of Finance forecasts export growth of 5% in 2011. Up to 1.9 million persons are in employment, a fact that is overlooked in the doom-laden public debate. We owe it to the others who are seeking employment and cannot find it to put the necessary conditions in place to return this economy to growth. This is what the Government has been doing.
Ireland is still an attractive place to do business. Eight of the top ten global medical technology companies have a manufacturing base in Ireland. Employment in the sector on a per capita basis is the highest in Europe. Eight of the top ten pharmaceutical companies have operations in Ireland. Throughout the past decade, we invested substantially in infrastructure and achieved major improvements, particularly in the quality of road, rail, air and sea transportation. We have also invested in sport and cultural facilities, as well as the educational sector.
These are all factors that add to our competitiveness. Over the past two years we have regained our competitive edge and our healthy exports are proof of that. The national recovery plan identifies the areas of economic activity which will provide growth and employment, and commits to the retention of our 12.5% corporation tax rate. We have every reason to be confident about the future of this economy. This programme provides the funding and support for the necessary reforms we need to take to ensure our future economic recovery.
It mystifies me that any party in this House could oppose this programme. The suggestion that the Opposition could negotiate a better interest rate from the IMF is laughable. The rate of interest charged by the IMF is calculated using the standard formula which it applies to all countries. This is a standard calculation and it is completely misleading to suggest that it could be renegotiated. Greece sought to have the terms of its loan adjusted in line with our terms. Perhaps the Opposition parties need to have a discussion about this with their opposite numbers in Greece. The truth is that the only renegotiation possible is on the conditionality of the programme, not the interest rates. On the conditionality of the programme, the crucial figures of the €15 billion adjustment are not open to renegotiation. There may be scope for compositional discussion but any compositional variations in the four year plan would required it to be credible. To suggest, as some parties have, that half of the programme or more could be raised by taxation is frankly incredible because of the devastating impact it would have on employment in this economy.
This year alone we have to borrow €19 billion to fund the State's expenditure. Any party opposing this motion has a duty to set out its alternative to the programme, without which Ireland would have an immediate €19 billion adjustment this year. I commend this motion to the House as the only realistic basis for our path to recovery.