The troika is coming to a consensus on helping Ireland reduce its €3.1bn-a-year bill to pay off €30bn in promissory notes used to bail out Anglo Irish Bank, now called the Irish Bank Resolution Corp.
Yesterday, the IMF’s deputy mission chief to Ireland, Craig Beaumont, said during a conference call with reporters: “There is a lot of consensus. It is still a work in progress but fundamentally the underlying process has attracted a lot of consensus.”
Mr Beaumont said an agreement by the IMF, EU and ECB on the promissory notes would “reinforce” Ireland’s debt sustainability. However, while he thinks it “is reasonable at this stage” to expect plans for modest fundraising in 2012 will be achieved, he said there is a more substantial need for market funding in 2013 where the risks are on the “high side” and he would like to see these reduced.
“Whether the Government manages to meet its financing needs next year will depend not only on continued strong policy implementation on its part, but also on developments in the euro area,” Mr Beaumont said in an IMF report on Ireland published yesterday in Washington. “Because of this uncertainty, the IMF is encouraging the European authorities to proactively take steps to reinforce the prospects of Ireland having adequate market access in 2013.
“After three years of recession, Ireland’s economy is recovering, albeit slowly. Led by a pickup in exports, the country saw growth turn positive in the first half of 2011. Financial markets are drawing confidence from Ireland’s strong implementation of the EU-and IMF-supported programme and the signs of recovery. As a result, Irish bond spreads have fallen markedly since they spiked in July 2011, and are now closer to the levels seen for Italy and Spain than for Portugal or Greece,” the IMF noted.
Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.99% yesterday, down from 9.1% at the start of December. The yield on the equivalent Greek security is 33% and is 13.5% on the Portuguese note, according to Bloomberg. Ireland has not raised any fresh money on bond markets since Nov 2010.
Mr Beaumont said the crisis is not yet over, “not least because unemployment remains unacceptably high at more than 14%,” and said reducing unemployment is a must for the success of the EU/IMF programme.
Mr Beaumont said while the export sector is creating jobs, the numbers are not large enough to create a significant decline in the rate of unemployment, because most are largely automated.
“This means stronger domestic demand is needed to bring down unemployment significantly. Recent and ongoing bank reforms should help restore healthy lending to households and small and medium-sized enterprises.
Mr Beaumont did not anticipate any impact on Ireland’s bailout programme from the decision this week to call a referendum on the new fiscal treaty.
On the banking sector Mr Beaumont said that while very good progress was made in deleveraging domestic banks, market conditions have not become more challenging as European banks have started disposing assets on a larger scale.
However the country’s deleveraging framework includes protection against losses from fire sales.
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