Statement by Minister for Finance, Brian Lenihan T.D. on the EU/IMF Programme 
for Ireland and the National Recovery Plan 2011 to 2014 
First of all, a Cheann Comairle, I want to inform the House that I am 
circulating to members the five documents which set out the policy conditions 
for the provision of financial support to Ireland by EU member states and the 
International Monetary Fund. These documents underpin the three year Programme 
of banking and economic measures on which we have now embarked. The documents 
*    the Memorandum of Economic and Financial Policies 2010 (MEFP) 
*    The Memorandum of Understanding on Specific Economic Policy 
Conditionality, (MoU) 
*    the Letters of Intent to the IMF and the EU  Authorities
*    and the Technical Memorandum of Understanding (TMU) attached to the Letter 
of Intent (LoI) to the IMF.
These documents are not yet finalised but they are not expected to change in 
substance.  The Memorandum on Economic and Fiscal Policies (MEFP) is  the 
foundation document of the IMF and EU elements of the programme.  It sets out 
the reasons for the programme along with its principal policy objectives which 
-    banking reorganisation
-    fiscal consolidation
-    renewing growth
 And it outlines the substantial external financial assistance to support these 
policy objectives. 
The Memorandum of Understanding on Specific Economic Policy conditionality  
sets out the conditions  for the disbursement of the assistance being provided 
under the European Financial Stabilisation Mechanism), the European Financial 
Stability Facility and the bilateral loans by the UK, Sweden and Denmark.  So 
this document relates to the EU element of the Programme although it does refer 
to the IMF. The memorandum sets quarterly targets for the achievement of the 
specified policy objectives and requires detailed quarterly reporting in 
respect of the achievement of these objectives.  This document closely reflects 
our own National Recovery Plan. 
It also requires the Government to consult with the European Commission, the 
ECB and the IMF about the adoption of policies that are not consistent with 
this Memorandum. 
The Technical Memorandum of Understanding, as its name suggests relates in the 
main to the definitions and reporting for fiscal aggregates.  It also requires 
that foreign debt arrears are not be incurred.  
The letters of intent are Ireland’s formal applications for support to the EU 
authorities and to the IMF. 
The question has been raised as to whether this support programme has the 
status of an international agreement.  I am advised by the Attorney General 
that the Programme, and these supporting documents do not represent 
international agreements and do not require the approval of the Dáil.  I am 
presenting the documents to the Dáil, for information and to inform discussion 
of the programme. 
A Cheann Comhairle, amid the sometimes hysterical and contradictory reaction to 
the external assistance programme, it strikes me that one quintessential point 
has been overlooked and it is this:  without this Programme, our ability to 
fund the payments to social welfare recipients, the salaries of our nurses, our 
doctors, our teachers, our Gardai, would have been extraordinarily limited and 
highly uncertain.  
Fifty billion of the €67.5 billion we are receiving from our European partners 
and from the IMF will go to fund those vital public services over the next 
three years. In those circumstances, the only responsible course of action for 
any government was to accept the EU/IMF financial assistance fund.  
Nonetheless, we enter this Programme not as a delinquent State that has lost 
fiscal control. We enter it as a country that is funded until the middle of 
next year; as a State whose citizens have shown remarkable resilience and 
flexibility over the last two years in facing head on, an economic and 
financial crisis the severity of which has few modern parallels.  
The team with whom we have negotiated has acknowledged our success in 
stabilising our public finances and they have endorsed our banking strategy.  
This is borne out in the documents I have just circulated. They have also 
accepted our four year Plan for National Recovery and have built their 
prescribed Programme around that Plan.  
This needs to be emphasised because it shows that we do have the capacity to 
get out of our difficulties and that we have already made considerable progress 
in that respect.  The fact is our economy is showing signs of recovery. As I 
have already reminded this house last week 
*    GDP will record a very small increase this year based on strong export 
*    Exports are expected to grow by about 6% in real terms this year, driven 
by improvements in competitiveness and a strengthening of international 
*    Conditions in the labour market are also beginning to stabilise. 
The outlook for next year is much improved.  As forecast in the Plan growth is 
expected to be around 1 ¾ per cent next year again driven by a remarkably 
robust export performance.   
The Fine Gael leader referred to the European Commission’s less optimistic 
forecasts in the Dail yesterday which he suggested had undermined our Four Year 
Plan. He ignored the substantial upward revision of the Commission’s forecast 
on international trade which will benefit a small open economy like ours in 
which growth, by common consent, will be export led.   
It is also the case that, under the Programme, we have been given an extra year 
to reach the deficit target of 3% of GDP precisely to take account of the 
Commission’s lower growth forecast. I welcome this step but it does not alter 
our budgetary plans as set out in the Plan. In other words the target of €15 
billion of adjustments by 2014, remains but there is further room for manoeuvre 
in the event that growth is lower than expected.  
In the later years, the Commission’s growth forecasts are similar to my 
Department's. It is also the case that others - such as the ESRI for example - 
believe that the Department of Finance forecast is too pessimistic. 
The Programme has adopted in its entirety the measures set out in the National 
Recovery Plan as a roadmap to return our economy to sustainable growth.  The 
adjustment of €15 billion by 2014 has been accepted as has the breakdown of €10 
billion in spending reductions and €5 billion in revenue raising measures. The 
details of the first €6 billion of this adjustment will be contained in the 
budget which I will present to the House next Tuesday. 
The programme of structural and labour market reform aimed at improving our 
competitiveness has also been endorsed by the Programme. It set out a detailed 
quarterly schedule for the achievement of the agreed measures.   
The negotiations on the Programme which took place over a ten day period were 
intense and at times difficult. They were conducted under my direction and that 
of the Governor of the Central Bank by the most senior officials from my 
Department, the Central Bank and the Financial Regulator, the National Treasury 
Management Agency and the Office of the Attorney General.     
There has been the usual barrage of criticism of the outcome accompanied by the 
personal abuse of those involved that has become common place in our debased 
public discourse. But none of the critics explains how we could have secured 
the funds we require at less cost to the State. 
Indeed the arguments put forward have been patently wrong. For example, it has 
been claimed that we are paying a higher interest rate than Greece even though 
Greece is now seeking our terms. The interest on Greek loans is 5.2% for 3 year 
loans.  Ireland’s interest rate will be 5.8% for loans that are on average for 
7½ years. A basic fact of sovereign borrowing is that the longer a country 
borrows money, the higher the interest rate paid.   
Of course, if at any time during the three years of the Programme, it emerges 
that we could borrow at a lower rate in the markets, there is nothing to stop 
us from doing so. 
I want to clarify the position of the €85 billion funding package and its 
impact on our debt levels.  Of the total, €50 billion is to provide the normal 
budget financing: in other words, it is money we would have had to borrow over 
the next three years in any event. The Programme provides these funds at a much 
lower rate than currently available to us in the market. This level of funding 
is already included in the plan.  Of the remaining €35 billion - €10 billion is 
for immediate additional bank recapitalisation and the remaining €25 billion is 
to be used as a contingency fund, only to be drawn down if required based, for 
example, on the results of the updated capital assessments. 
Furthermore, the State is in the happy position of being able to contribute 
€17.5 billion towards the €85 billion from its own resources, including the 
National Pension Reserve Fund. It can do this without prejudicing the 
commitments in the four year plan to use funds from the NPRF for projects such 
as the water metering programme and retrofitting.  
This use of the NPRF has provoked the most bewildering criticism of all from 
parties who, having for years fundamentally disagreed with the very existence 
of the Fund, have now become its most ardent protectors.  And on this point the 
arguments make absolutely no sense. Why would we borrow expensively to invest 
in our banks when we have money in a cash deposit earning a low rate of 
interest?  And how on earth can we ask tax payers in other countries to 
contribute to a financial support package while we hold a sovereign wealth 
fund? We have a large problem with our banks which has forced us to seek this 
external assistance. In these circumstances, it is surely appropriate that our 
cash reserves should be deployed to help solve that problem.  
The reason we had to seek external assistance is because the problems in our 
banking system simply became too big for this State to handle on its own. Our 
public finance problems are serious but we were well on the way to solving 
them. The combination of the two sets of difficulties in circumstances where 
the entire Eurozone was under pressure was beyond our capacity. 
So the primary aim of the Programme agreed last weekend is to support the 
recovery and restructuring of our banking system. 
It has been clear for some time that our banks were facing serious challenges 
in terms of their liquidity position.  Lingering concerns in the market 
regarding their capital position led to negative market sentiment. 
This was despite the substantial transfer of the banks’ riskiest loans to NAMA 
and the detailed capital adequacy assessment made by the Financial Regulator in 
the summer as well as the significant recapitalisation measures that flowed 
from that.   
But the Programme does not propose any departure from existing policy: its 
prescription is an intensification and acceleration of the restructuring 
process already being undertaken for the Irish banks.  A key objective is to 
ensure that the size of the domestic banking system is proportionate to the 
size of the economy and is appropriately aligned with the funding capacity of 
the banks overall taking into account stable sources of deposit and wholesale 
The programme also seeks to demonstrate the capacity of the banks to 
accommodate any unexpected significant further deterioration in asset quality 
so as to rebuild market confidence in the robustness and financial resilience 
of the banking system overall.  
The Central Bank is requiring the banks to meet a Core Tier 1 capital ratio of 
12% - a key measure of capital strength.   If the banks cannot source it 
themselves, the State will inject the necessary capital.  This can be drawn 
from the  €10bn which is available immediately from the overall Programme fund. 
As I have outlined above, a further remaining €25bn. euro will be available on 
a contingency basis. 
It is important to point out that a detailed and extensive review of the 
financial status of the Irish banks was undertaken by the external authorities 
in advance of the agreement on the EU/IMF Programme. 
There was a very sharp focus in this work on the results of the Central Bank of 
Ireland's assessment of the capital position of banks - the Prudential Capital 
Assessment Review (PCAR) - carried out earlier this year and updated in 
September last.  The Governor of the Central Bank recently confirmed that the 
external experts had found no fault with the methodology used for the PCAR 
The Central Bank will under ther terms of the Programme carry out an updated 
PCAR exercise on the capital position of the banks in early 2011 based on 
stringent stress testing and detailed reviews of asset quality and valuation. 
This exercise will  take into account updated assessments of the macroeconomic 
environment.   It  will ensure that over the coming years,  the banks’ capital 
ratio do not fall below 10.5%. This is a high standard in international terms 
and it should give confidence to the market that our banks will be in a strong 
financial position.  This in turn will provide the necessary reassurance to 
allow the banks to attract greater market funding in due course. 
The Government will also undertake a process of significant restructuring and 
right-sizing of the banks to reduce their balance sheets.  In this context, all 
land and development loans below €20m in Bank of Ireland and AIB will be 
transferred to NAMA.   
Further work will be undertaken in the short-term with the banks to identify 
how the sector can be reorganised to ensure that we have a viable and 
financially strong banking system which meets the needs of the real economy and 
has the confidence of international markets. This strategy, developed in 
collaboration with the various international organisations and endorsed by 
them, builds on the measures adopted by the Government over the past two years 
to resolve our serious banking difficulties.   
The Programme allows for an integrated approach to the restructuring of Anglo 
Irish bank and Irish Nationwide Building Society, building on the proposed 
Asset Recovery Bank structure to seek to maximise value from their loan books. 
Revised restructuring plans for the two institutions will be submitted to the 
European Commission in early 2011 detailing the resolution of the institutions, 
in particular the arrangements for working out of assets over an extended 
period of time   
I would like to reiterate that all deposits held with the domestic banking 
system are safe and covered by the Deposit Protection Scheme for sums up to 
€100,000. In addition, deposits in participating institutions under the 
Eligible Liabilities Guarantee Scheme are guaranteed in line with the terms of 
the Scheme for sums over €100,000.  The Scheme has been extended in national 
law to the end of 2011.  
There has been much commentary about the need for senior bondholders to accept 
their share of the burden of this crisis. I certainly raised this 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. The strongly held belief among our European partners is 
that any move to impose burden sharing on this group of investors would have 
the potential to create a huge wave of further negative market sentiment 
towards the eurozone and its banks system.  That apprehension was confirmed by 
Professor Honohan in an interview last Monday when he said there was no 
enthusiasm in Europe for this course of action. 
There is simply no way that this country, whose banks are so dependent on 
international investors, can unilaterally renege on senior bondholders against 
the wishes of the ECB. Those who think we could do so are living in fantasy 
land. Worse still, those who know we cannot do so but who nonetheless persist 
with the line are damaging this country and its financial system: and all for 
the sake of a cheap headline.  It is a case of politics as usual even at this 
most difficult time. 
The idea which is now commonplace,  that some how there are no costs associated 
with default is entirely incorrect. Ireland is hugely dependent on Foreign 
Direct Investment.   These companies have large funds and investments in 
Ireland and directly and indirectly employ a quarter of million people in this 
economy.  Any default on senior debt and the uncertainty that would cause would 
undoubtedly impact on the future investment decisions of these companies. 
Subordinate Bonds
Subordinated debt holders are in a different position. As I said in my 
statement on the 30th of September last, there will be significant burden 
sharing by junior debt holders in Irish Nationwide and Anglo Irish Bank. These 
two institutions had received very substantial amounts of State assistance and 
it was only right that this should be done. 
My Department has been working with the Office of the Attorney General to draft 
appropriate legislation to achieve this and this is near finalisation.  
Parallel to this Anglo Irish Bank has run a buyback operation which will offer 
these bondholders an exchange of new debt for old but at a discount of at least 
80%.  This process is still underway and will be concluded shortly. 
Obviously this approach will also 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.  I hope to be in a 
position soon to announce this legislation. 
We need a properly functioning banking system for this country.  As I have 
indicated in the past we need to shift to a banking system commensurate with 
the economy but one that is strong and capable of meeting our needs.  That has 
been the overriding objective of all our efforts since this crisis began two 
years ago.  I believe the considerable funds provided by this Programme, will 
enable us to bring this crisis to an end and to secure the future of the Irish 
banking system so that it can play its full role in supporting the development 
of this country.  
We have been through a traumatic two years. Of course, we would have preferred 
to avoid resort to external assistance.  But we can emerge from it a stronger 
and fitter economy. The attributes that brought us the boom: the quality of our 
workers, our entrepreneurship, our pro-business environment; all of these 
remain in tact. During the boom we built a top class transport infrastructure, 
sport and cultural facilities and educational sector.   Over the last two 
years, we have won back much of the competitiveness we lost during the boom. 
This 3 year EU/IMF Programme will provide the basis for funding us through our 
current difficulties.  It provides the funding to restructure and recapitalise 
our banking system. And it will guide us through the implementation of the 
necessary budgetary and reform strategies set out in the National Recovery 
Plan.   A Cheann Comhairle, we have every reason to be confident about the 
future of this economy.
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