EU-IMF Programme Documents & Secret Side Letter on the Banks - Update: Lenihan's Letter of November 9th Released

[C. Flower]

Great blog post from NamaWineLake. He has hit the nail exactly on the head. We are being nudged quietly to the trapdoor by our government and the EU. They must be delighted with the weather. Its a godsend for the people who want to distract us from what's going on under our noses.
Again any pretense of democracy has been abandoned with this secret side letter agreed with the EU and IMF outlining confidential measures for the banks and tax changes.

I feel utterly unbound by this "agreement"

[PaddyJoe]

I feel utterly unbound by this "agreement"

A agreement arrived at by people who can't even muster 15% support in the latest opinion poll. I don't see the slightest reason why any Irish person should think themselves bound by something like this.
No Dail vote, no proper debate, no legal test of its constitutionality, no referendum: this concedes much more control of our own affairs than the Lisbon referenda ever did

[C. Flower]

I don't feel that this is just an Irish issue, but the signs are going up.

[C. Flower]

The IMF has formally agreed the Irish loan package this morning (reported by Sky).
Germany is officially out of recession

[tea drinker]

The IMF has formally agreed the Irish loan package this morning (reported by Sky).
Germany is officially out of recession

Coincidence? :-)


Lenny:

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.

What have the problems in the banks got to do with ANY taxpayers? What is this WE business? It's a problem for bankshareholders / investors and depositors (I am one). He might worry first about stealing money from Irish pension to pay for the bank failures. Has anyone been found guilty of fraud?
It's like some variation on incest, better to bone your own family - it feels so familiar
I'd prefer my deposits in BOI to be reduced by 50% than have 100% of this.
Who are the depositors? how come the Nuclear option guaruntee is so expensive? Have the deposits been overestimated in order to make the loan book better? Are the banks still shuffling billions from to the other like a guy with overdrawn credit cards?

[C. Flower]

The obvious solution would have been to use the NPRF for day to day expenditure while we quickly sliced out non-productive waste from our spending.

The IMF, as NAMAwinelake said, is with us to make sure that banks are paid and to avail of our vulnerability to have our public assets sold off.

[C. Flower]

IMF Press Release

http://www.imf.org/external/np/sec/pr/2010/pr10496.htm


IMF Executive Board Approves €22.5 Billion Extended Arrangement for Ireland

Press Release No. 10/496
December 16, 2010
The Executive Board of the International Monetary Fund (IMF) today approved a three-year Extended Fund Facility (EFF) arrangement for Ireland to support the authorities’ economic adjustment and financial stabilization program. The Fund arrangement amounts to SDR 19.5 billion (about €22.5 billion; or US$30.1 billion), or the equivalent of about 2,322 percent of Ireland’s IMF quota. The arrangement forms a critical part of a substantial financing package amounting to €85 billion (about US$113 billion) from Ireland’s European partners through the European Financial Stabilization Mechanism (EFSM) and European Financial Stability Facility (EFSF), and bilateral loans from the UK, Sweden and Denmark, and Ireland’s own contributions.
The EFSM, EFSF and bilateral European lenders will provide €45 billion on similar maturities as the IMF’s EFF. The Irish authorities will round out the total financing package through a contribution amounting to €17.5 billion from the nation’s cash reserves and liquid assets. European Central Bank liquidity support is also an essential component of the overall economic and financial program.
“The Irish authorities have designed an ambitious policy package to address the economic crisis facing the nation,” IMF Managing Director Dominique Strauss-Kahn stated. “It is a multi-year program targeting vulnerabilities in the banking system and aiming to restore prospects for growth—without which there can be no enduring solution to the crisis. The authorities designed a program with fairness in mind so that the burden of economic and financial adjustment is shared across all levels of society, with the most vulnerable groups the most protected.”
Exceptional financial assistance from the IMF and Europe will support the authorities’ efforts by providing sufficient financial resources to allow time for Ireland to restore market confidence and foster renewed growth and job creation, Mr. Strauss-Kahn noted.
The extended arrangement under the EFF for Ireland was approved under the Fund's exceptional access policy and fast-track Emergency Financing Mechanism procedures. As a result of the IMF Executive Board action, SDR 5 billion (about €5.8 billion) is immediately available to Ireland from the IMF.
Following the Executive Board’s action on Ireland, Mr. Strauss-Kahn, who also serves as Chairman of the Board, stated:
“The Irish economy faces a crisis without parallel in its recent history. The new program, building on the authorities’ recent efforts, steps up the pace and range of measures to address financial and fiscal stability concerns. A clear and realistic package of policies is set in a multi-year policy framework to restore Ireland’s banking system to health, place its public finances on a sound footing, and reclaim growth.
“The strategy for the financial system rests on twin pillars: deleveraging and reorganization; and ample capitalization. In addition, structural measures—a special resolution scheme for deposit-taking institutions and a further strengthening of the supervisory system—will enhance stability.
“The National Recovery Plan forms the basis for the 2011 budget and also details fiscal consolidation measures through 2014. The fiscal plan makes pragmatic choices, and maintains Ireland's due regard to a social safety net. The process of budget formation will be reformed to safeguard these gains.
“To restore strong, sustainable growth the program includes a strategy to remove potential structural impediments to enhancing competitiveness and creating new employment opportunities.
“A financing package of €85 billion (about US$113 billion) will support the comprehensive set of policies. Of this, the European Union and bilateral European lenders have pledged a total of €45 billion (about US$60 billion). The Irish authorities are to contribute €17.5 billion from the nation’s cash reserves and other liquid assets. The IMF contribution would be through a three-year SDR 19.5 billion (about €22.5 billion; or US$30.1 billion) loan, representing about 2,322 percent of quota, under the Extended Fund Facility (EFF). The EFF ensures a realistic repayment schedule, given the time needed to complete an orderly overhaul of the banking system and broader structural reforms”.
ANNEX
Recent Economic Developments
Despite the authorities’ efforts to implement bold economic policies in a difficult environment, Ireland has faced intense economic and financial pressures in recent months. At the root of its problems is a critically-weakened banking sector that has yet to be restored to health and stands at the center of a negative dynamic that dampens economic recovery while creating further significant fiscal challenges.
The authorities have taken major measures to strengthen the banking sector but vulnerabilities remain acute. The National Asset Management Agency is taking over banks’ land and property development assets; substantial capital has been injected, and sovereign guarantees have sought to reassure banks’ creditors. However, market pressures continue to pose challenges to large rollover needs, threatening banking system solvency and placing a severe burden on the sovereign’s finances. Layered on these real difficulties is the fall in domestic consumer and international investor confidence, with implications for growth and the cost of funding.
Moving early, the Irish authorities implemented sizeable fiscal consolidation over 2009–10. However, public finances were weighed down by a deep structural deficit, commitments to bank support, and weak growth. Public debt is, as a result, projected to end up close to 100 percent of GDP by end-2010. To help stabilize public debt, the authorities’ fiscal consolidation plan includes another €15 billion in consolidation measures over 2011–14, equivalent to 9 percent of GDP.
The authorities’ program aims to restore Ireland’s banking system to health and put the nation’s public finances on a sound footing, thus stimulating renewed confidence and a return to strong, sustained growth.
Program Summary
The authorities’ program focuses on the following priority areas:
• Fundamental restructuring of the banking sector will entail extensive deleveraging and reorganization. While this process will take time, it will start immediately and will move with deliberate speed. A smaller, more robust, and better-capitalized banking system will emerge to serve the needs of the Irish economy. To support the banking sector’s transition, banks will maintain higher capital adequacy standards to minimize market perceptions of weakness, and thereby achieve improved access to funding.
• The National Recovery Plan will form the basis of 2011 and subsequent budgets. The Plan strikes an appropriate balance between consolidation to achieve fiscal sustainability while mitigating adverse effects on growth and protecting the most vulnerable.
• Structural impediments to business environment that might underpin competitiveness in the years ahead, supporting growth, will be addressed under the program.
To achieve the program objective a multifaceted approach will be undertaken:
• A fundamentally restructured banking system that downsizes the banking sector (while addressing market perceptions of weak bank capital positions).
• Safeguarding the fiscal consolidation plan to lower the deficit and debt over the medium term.
• Institutional reform to improve the shock-absorbing capacity of the economy: a special resolution regime for banks, stronger supervision, and greater budgetary oversight.
• Further reforms to improve the economy’s efficiency to enhance growth potential.
• Large external financial assistance to manage the transition and reestablish much-needed policy credibility.
The stability thus generated—along with improved competitiveness and increased credit flows—would underpin a return of confidence, and, hence, brighter employment and growth prospects.
Background
Ireland, which became of member of the IMF on August 8, 1957, has an IMF quota of SDR 838.40 million.
For additional information on the IMF and Ireland, see: http://www.imf.org/external/country/IRL/index.htm

[C. Flower]

Not sure if this letter has emerged yet. Also, I haven't seen the IMF Treaty amendment proposed wording....

[NAMAwinelake]

Just to be clear on the side letter, reference to it first occured in the Irish Times (link below) which said "The Government has withheld from publication a side letter agreed with the EU and IMF outlining confidential measures for the banks and tax changes to be included in Tuesday’s budget."

We don't know how the banks will deleverage up to €90bn of loans and what effect that would have on the economy, not to mention the terms of the ECB's emergency assistance programme which was signposted as ending in Jan 2011, nor how NAMA will raise €5bn of funding, nor IMF estimates of losses in the banks or the outlooks for the banks which are getting capital at 6% (does that mean that our mortgages are set to rise to 8% so that the banks make a profit?). There is neither a credible starting position for the banks (non-NAMA and off-balance sheet losses) nor a published plan for restructuring the sector nor evidence that the effect of the restructure might have on the wider economy.

http://www.irishtimes.com/newspaper/...284574676.html

[C. Flower]

Just to be clear on the side letter, reference to it first occured in the Irish Times (link below) which said "The Government has withheld from publication a side letter agreed with the EU and IMF outlining confidential measures for the banks and tax changes to be included in Tuesday’s budget."

We don't know how the banks will deleverage up to €90bn of loans and what effect that would have on the economy, not to mention the terms of the ECB's emergency assistance programme which was signposted as ending in Jan 2011, nor how NAMA will raise €5bn of funding, nor IMF estimates of losses in the banks or the outlooks for the banks which are getting capital at 6% (does that mean that our mortgages are set to rise to 8% so that the banks make a profit?). There is neither a credible starting position for the banks (non-NAMA and off-balance sheet losses) nor a published plan for restructuring the sector nor evidence that the effect of the restructure might have on the wider economy.

http://www.irishtimes.com/newspaper/...284574676.html

The ECB "Opinion" seems to be that the Credit Institutions (Stabilisation) Act will not provide for the kind of wind up of the Irish banking system that the IMF/EU wants to see.

My impression from an interview I heard with Honohan is that the idea is that we should heftily recapitalise the banks (although there is a question over liquidity) and have a firesale of them. I see no concern for having a functioning bank system that can sustain the Irish economy.

On the other hand the ECB is saying that Lenihan is trying to keep Ango Irish and a building society afloat, via CISB provisions, contrary to their understanding with him.

Is it possible that the "secret letter" was not published because Lenihan was planning to ignore aspects of it ?

http://www.ecb.int/ecb/legal/pdf/en_con_2010_92_f.pdf

I would seriously wonder at this stage what Lenihan wants to cover up inside the Anglo Irish shell.

[Captain Con O'Sullivan]

To be honest I'd say Briano can sign whatever document he likes with a 'secret' element to it.

Gives the incoming regime an opportunity to turn around and declare that it was unconstitutional and a great opening for a renegotiation.

I'm pretty sure that neither of the bankers rentboys at the head of the Irish government nor the IMF want to see that side letter made public.

Cracking lever there for a reopening of talks.

[C. Flower]

Just to be clear on the side letter, reference to it first occured in the Irish Times (link below) which said "The Government has withheld from publication a side letter agreed with the EU and IMF outlining confidential measures for the banks and tax changes to be included in Tuesday’s budget."

We don't know how the banks will deleverage up to €90bn of loans and what effect that would have on the economy, not to mention the terms of the ECB's emergency assistance programme which was signposted as ending in Jan 2011, nor how NAMA will raise €5bn of funding, nor IMF estimates of losses in the banks or the outlooks for the banks which are getting capital at 6% (does that mean that our mortgages are set to rise to 8% so that the banks make a profit?). There is neither a credible starting position for the banks (non-NAMA and off-balance sheet losses) nor a published plan for restructuring the sector nor evidence that the effect of the restructure might have on the wider economy.

http://www.irishtimes.com/newspaper/...284574676.html

Your own excellent blog is very helpful in pointing to the problems with the the EU/IMF agreement and the ECB Opinion on the CIS Bill is very negative. There is no real agreement in the EU over what to do about the crisis. I can see all this coming to a horrible crunch in a few weeks.

http://namawinelake.wordpress.com/20...lisation-bill/

[Captain Con O'Sullivan]

So if the details of the side letter were to be published in the Budget- what were they? We've had the Budget.

Unless of course the side-letter deals with the grab for extra powers that Mrs FF is pretending up in the Aras is keeping her awake at night?

Interesting manouver- political representative attempts to sign contract with secret clauses on behalf of the Irish people.

Great grounds for unwinding the whole thing I'd have thought. No-one could blame us for rejecting or overturning a proposed agreement in which the details have not been released.

Gives us a get-out narrative anyway. Would that even be constitutional? Since when do Irish politicians have authority to sign up to finance deals with secret clauses?

[ang]

It also appears that the IMF are insisting on different accountancy firms and auditors for the next lot of banking stress tests coming up, they do not want companies who have previously been involved with these banks to play a role.

Where will we look for the new team ?

Irish accountancy firms and auditors who've worked with the Irish banks during the past three years have been barred from doing key stress tests on behalf of the Central Bank and the IMF.

The IMF has instructed the Central Bank and Financial Regulator to do a new "diagnostic study'' of bank balance sheets to identify how adequate current capital levels are.

But according to the IMF report on Ireland's rescue package -- published yesterday -- this study "should not be conducted by an audit or consultancy firm that has provided such services to the banks in the last three years''.

http://www.independent.ie/business/i...n-2465638.html

[Captain Con O'Sullivan]

Haw haw ... another stress test. Didn't Irish banks pass with flying colours on the last one based on the criteria laid down by the ECB?

And within weeks start sticking the hand out again for public money? I'd love to see the stress test results for Deutsche Bank and Unicredito in Italy. They don't need accountants- they may have to fly in Rolf Harris to do a rough sketch and hope that'll do!