85 billion for Ireland approved

The EU has approved an €85 billion rescue package for Ireland which, if drawn down in its entirety today, would attract an average interest rate of 5.83 per cent.

Of this €10 billion will be used to immediately to recapitalise the banks to bring them up to a core tier 1 capital ratio of 12 per cent, with a €25 billion contingency. Further injections of capital for the banks will take place in the first half of 2011, as needed.

The remaining €50 billion will be used to meet the budgetary requirements of the State.

Ireland has also secured an extra year – until 2015 – to meet its target of reducing its budgetary deficit to 3 per cent.

Under the terms of the deal the State will contribute 17.5 billion of the funding required, €12.5 billion of which will come from the National Pension Reserve Fund and €5 billion from “other domestic cash resources”.

The European Financial Stability Mechanism will contribute €22.5 billion, the IMF €22.5 billion and the €22.5 billion from the European Financial Stability Fund.

A statement released this evening – the Joint EU/IMF Programme for Ireland - says the interest rate payable on the loans “will vary” according to timing and market conditions.

The programme has two parts; the first involves a restructuring of the Irish banking system and the second fiscal policy and structural reform.

The document under the restructuring the Irish banking system will become smaller and more appropriate to a country of Ireland’s size.

At a press conference in Dublin this evening Taoiseach Brian Cowen said under the terms of the deal there would be no change to the country’s 12.5 per cent corporation tax rate.

Mr Cowen said the “final agreed programme represents the best available deal for Ireland”.

“It allows us to move forward with secure funding for our essential public services, for our welfare state, for the most vulnerable members of society that depend on them.

“And it provides Ireland with vital time and space to successfully and conclusively address the unprecedented problems we have been dealing with since this global economic crisis began.”

He said the Government had “carefully considered all available policy options” and had taken advice from the Governor of the Central Bank Patrick Honohan.

He said the EU/IMF loans were necessary to allow the Government meet its obligations and cheaper than borrowings available from the market.

“Without this external support, the State would not be able to raise the funds required to pay for key public services for our citizens and to provide a functioning banking system to support economic activity,” he said.

He also said there was no “political support” for a move that would have sought to force senior bondholders to take a writedown on their debt.

Mr Cowen said the agreement with the EU/IMF had endorsed the Government’s target of reducing the country’s budget deficit by €15 billion over the next four years.

EU monetary affairs commissioner Olli Rehn said the deal had been agreed following very intensive discussions with Irish officials.

Mr Cowen said the assistance of Ireland’s EU partners and the IMF was required because of the high yields on Irish bonds had curtailed the State’s ability to borrow.

The Programme says the funding will be provided in quarterly tranches on the achievement of agreed targets.

Finally, under the terms of the deal Ireland will discontinue its financial assistance to the loan facility to Greece, a contribution which would have reached €1 billion by mid-2013.

IMF chief Dominique Struass-Kahn confirmed that the fund will contribute €22.5 billion to Ireland's rescue package, and said it is likely to be approved by the IMF board in December.

"The strategy for the financial system rests on twin pillars: deleveraging and reorganization; and ample capitalization," Mr Strauss-Kahn said in a statement.

"A fundamental downsizing and reorganization to restore the viability of the system will commence immediately."