“Success in Ireland will hinge on euro-area stability and recovery,” IMF Deputy Director Ajai Chopra told reporters in Dublin today. The IMF expects European leaders to implement the commitments made last month, which include setting up a pan- euro-region banking supervisor and directly recapitalizing banks, Chopra said.
Ireland has pledged or injected about 64 billion euros ($78 billion) to save its financial system. The government is seeking help to refinance about 30 billion euros used to rescue the former Anglo Irish Bank Corp. The IMF said today that the nation’s banks may have to rely on extra liquidity from the European Central Bank as debts come due.
The IMF is helping to formulate a plan for Irish banks with the aim of improving the nation’s debt sustainability, Chopra said. There is a new political mandate in Europe for severing the link between bank and sovereign debt, he said.
European support for Irish banks will facilitate “a durable return of the sovereign to market financing,” the IMF said separately in a report today. Irish Finance Minister Michael Noonan said yesterday after a meeting with ECB President Mario Draghi that the country is “making progress” in easing the terms of its international bailout.
Chopra said that the matter of a timetable for an Irish bank accord was between Ireland and European authorities. The yield on Ireland’s 5 percent security due in October 2020 was little changed at 6.26 percent.
The cost to the state of bailing out its banks is about 40 percent of GDP and accounts for about half the increase in net public debt in recent years, according the IMF. While there is little “low hanging fruit” for additional expenditure cuts, there is scope for broadening the tax base to generate more revenues, the IMF said.
The prospects for Ireland’s economic recovery ultimately will hinge on calmer euro-area financial conditions and a revival in growth among Ireland’s trading partners, according to IMF. The IMF forecasts the Irish economy to slow to 0.5 percent this year.
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