Terms and conditions back in focus
Social protection reforms remain under scrutiny by the troika, but the focus has shifted to agreement on debt relief in October.
The Government’s hopes of exiting an EU-IMF lending programme, and being in a better financial position at the end of it than originally envisaged, have undoubtedly increased. In June, European leaders agreed to re-examine the current programme and the level of government debt arising from the banking sector in particular.
On 26 July, Ireland successfully raised €4.2 billion in new five-year and existing eight-year bonds at a weighted average of 5.95 per cent, well below the 7 per cent mark deemed unsustainable for government borrowing. In August, the NTMA sold amortising bonds with an average maturity of 16 years at 5.91 per cent. Irish benchmark nine-year bonds have dropped below 6 per cent, down from 14 per cent over a year ago.
Finance Minister Michael Noonan pointed out Ireland’s borrowing success (and the successful completion of the Q2 review) in his latest letter to European leaders on the EU-IMF programme. In support of a favourable deal on debt relief are the new borrowing rates, the Fiscal Treaty referendum result and a commitment from the Euro Group President Jean-Claude Juncker that the terms of any banking debt deal for Spain or Italy will have to apply retrospectively to Ireland. Germany has sent out mixed messages on what might happen, with its Finance Minister Wolfgang Schäuble stating recently that Ireland’s progress should not be compromised by any negative signal being sent to financial markets from the deal’s terms.
Negotiations are reported to centre on three areas: a re-negotiation (but not deletion from Ireland’s debt balance sheet) of the €3.06 billion annual promissory note used to fund the Irish Bank Resolution Corporation; the use of funds from the new European Stability Mechanism (ESM) as a replacement to those already paid into banks still operating (possibly in the form of shares); and the removal of loss-making tracker mortgages from the banks’ balance sheets.
Parallel to negotiations on re-structuring the debt are the ongoing requirements to be fulfilled by the end of September under the revised memorandum of understanding.
Progress in reforming social protection and welfare-to-work appears to be one of the troika’s main concerns. Seven targets from Q2 have been replicated for Q3. The Department of Social Protection must ensure that engagement with employment services takes place as a pre-condition for receipt of jobseekers’ payments. It must also increase the number of unemployed referred to training courses and employment supports, and provide data about the live register, broken down by continuous duration and probability of exit by various durations.
Other Q3 commitments include:
• assessment of banks’ deleveraging based on existing nominal targets for disposal and run-off of non-core assets (to meet a loan to deposit target ratio of 122.5 per cent by 2013);
• a review of progress towards meeting the Basel III (equity and capital) requirements and the management of non-performing mortgage portfolios;
• legislation to strengthen the credit union legislative framework, the general scheme of which has been approved by government; and
• a bank-funded programme to facilitate access by distressed borrowers to professional financial advisory services.
The troika also wants to see progress on how the HSE will reduce its spending over-run this year and the transfer of water services provision from local authorities to (the yet to be established) Irish Water. The Fiscal Responsibility Bill, a requirement of this quarter, has already been published. It enshrines in law a commitment to a budgetary balance or surplus and a correction mechanism when government debt as a percentage of GDP exceeds 60 per cent. It also puts already operational multi-annual expenditure limits (an annual structural balance of -0.5 per cent) and the Irish Fiscal Advisory Council on a statutory footing.
