Ireland has successfully concluded the sixth review of the Programme with the EU Commission, the ECB and the IMF. In line with each of the previous five quarterly reviews Ireland has continued to achieve all of the targets set under our programme of assistance.
As part of the review mission, which begun on 16th
April, there has been a detailed assessment of fiscal developments, the macroeconomic outlook, progress on commitments in the restructuring of the financial sector and in structural reform. The review also provides for discussions between the Government and the external partners on adapting the Programme of Assistance, which improves its effectiveness by supporting the economy’s potential to grow and create jobs.
On welcoming the successful conclusion of the review, Minister Noonan and Minister Howlin stated:
“We are pleased that we have met our targets, all measures have been implemented and the programme is on track. This successful outcome illustrates, once more, the ability and the commitment of the Irish State to implement a challenging programme effectively.
Economic data released since the last Troika review in January has shown that the Irish Economy has returned to growth in 2011, the first time since 2007, our underlying deficit for 2011 is 9.4% - significantly ahead of the target of 10.6%, our tax take is growing and we are on track to meet our 8.6% deficit target in 2012.
Over 100 actions have been completed under the programme and over 70% of the available funds have been drawn down. Stability has been restored to the public finances, a range of structural reforms have been introduced and the financial sector is refocused on meeting the needs of the Irish economy.
As well as examining programme implementation over the past quarter over the course of this mission we have begun to examine measures to strengthen the focus on growth. The revised MoU contains a commitment to strengthen the growth pillar of the programme.”
Minister Noonan stated:
“Agreement has been reached, in line with the programme commitments, on the strategic direction for Permanent TSB, with a formal Restructuring Plan to be submitted to the European Commission by the end of June. The objective of this plan is to create a viable retail bank focused on lending into the Irish economy. This will be achieved by carving out a viable bank from the current Permanent TSB business.
On the wider banking sector we remain committed to preparing our banks for the future and ensuring their capital strength. The Government’s overall objective is to return the banks to private ownership and to maximize the return on the taxpayer’s investment in the banks.
Stability is being restored to the banking sector, relationship frameworks have been introduced, deposits have stabilized and the deleveraging programme is on target. The normalization of our banking system is an ongoing process. Reflecting this more normal situation the Central Bank will align the next PCAR exercise with the EBA stress tests that will be held in 2013.
The banks’ focus will be on more normal operations such as mortgage and SME lending, tackling the problem of mortgage arrears and debt recovery. Ireland continues to have the most prudent capital requirements of any European country. The steps outlined above reinforce our key objective of getting credit to the domestic economy and helping to create jobs and growth.”
Minister Howlin on the conclusion of the visit stated;
“For the sixth consecutive review Ireland has met the challenging targets under the programme. We are committed to achieving economic recovery and creating more jobs. We have agreed with the Troika that a higher proportion of the proceeds from the sale of state assets will be used to support jobs and economic growth. The exact quantum (above the 1/3 of proceeds already agreed) is yet to be determined but I am confident that we will be successful in this regard. We need to implement the plan but also we need economic stimulus and growth; I welcome the acknowledgement of our troika partners of the importance of the growth agenda to the overall success of the programme.
Over the course of the quarter there has been a considerable reduction in the numbers in the public service which will deliver long term sustainable paybill savings. Furthermore, we will continue to actively manage expenditure and I am confident that we will adhere to our spending targets in 2012 as we did in 2011.
The programme is a process and we have made significant progress in our first year; including a reduction in the interest rate that will save us €10 billion, restoring the minimum wage and we are putting in place legislation to underpin Joint Labour Committees.
I welcome the endorsement by the troika that Ireland has met all targets to date and the programme remains on track. The Government is committed to meeting our targets under the programme as continuing to do so is the best way of ensuring Ireland succeeds and for us to return to the market and fund ourselves independently.”
Both Ministers concluded:
“We welcome the fact that our programme remains on track and we continue to meet all our targets. In the first quarter 2012 we have seen robust tax returns and we continue to control our public expenditure. There remains a challenging road ahead but we remain fully committed to reducing our deficit to 3% of GDP by 2015 and we are confident that the 8.6% target for 2012 will be met. This Government is focused on creating jobs and restoring Ireland’s economic sovereignty; the successful implementation of the programme as well as endorsing the upcoming stability referendum will put us on this path.”
ENDSNotes to EditorStructural Reform
- The preparatory work necessary to sell state assets will be scoped fully by end June and completed by end 2012 and we will retain a significant amount of the proceeds to invest in jobs.
- Amendments will be introduced to sectoral wage legislation by end June, particularly to strengthen the inability to pay clause, and ensure that the granting of variations is dealt with in a timely manner.
Financial Sector Reform
- Legislation to strengthen the regulatory framework of Credit Unions is to be published during the third quarter 2012. A regulation to legally provide under the Deposit Guarantee Scheme for the maintaining by Credit Unions of an amount in the Deposit Protection Account at the Central Bank will be in place by end September 2012.
- A detailed action plan to ensure the smooth and timely implementation of the personal-debt regime and for the establishment of an insolvency service is to be provided in the coming months, with the new legislation to reform the personal-debt regime to be introduced before the summer recess.
- Following the success of PCAR 2011 and the recapitalisation of the banks, we must ensure their continued strong capitalisation.
To this end, the Central Bank of Ireland will
PTSB and Irish Life
- continue to implement measures to strengthen the banks and assessing them through supporting activities including an independent asset quality review and a distressed credit operations review.
- Continuously monitor compliance with the 10.5% minimum capital ratio
- Prepare a progress report of the banks relative to PCAR 2011.
- There will be a particular focus on intensifying the work being done by the banks in relation to all aspects of the Mortgage Arrears Resolution Strategies and their distressed credit operations capabilities.
- These initiatives will strengthen the capital resilience of the banks, helping prepare them for the future
- The ongoing restructuring of the banks will continue to ensure they are best suited to the ongoing needs of the economy
- The central bank has decided to align the next PCAR with the next EBA stress test (in 2013) when the progress from these initiatives will be reflected in the outcome and we will have moved significantly towards a normalisation of our banking system.
Structural Fiscal Reform
- The separation of Irish Life from the Irish Life and Permanent Group is continuing and is expected to be completed by end June 2012.
- Following the granting of a Direction Order on 28th March 2012 it is intended that the Minister will now acquire Irish Life for a consideration of €1.3bn to also be completed by end June 2012. This sale will complete the recapitalisation of Irish Life and Permanent.
- PTSB’s proposal for financial and operational restructuring sets out a path to address its vulnerabilities. This requires the segregation of certain legacy and non performing assets and their timely removal from the bank; we will continue to work with the external partners to achieve a timely solution. An updated restructuring plan for PTSB will be submitted detailing the actions needed to ensure the viability of the core businesses in line with EC state aid rules, by end June 2012.
- In the interim work on financial and operational restructuring of PTSB will continue apace.
Legislation to anchor the already operational multi-annual expenditure limits will be published by the end of September.