It is still unclear why Ireland did not seek 100% of its bailout from the IMF. And why Ireland entered into negotiations with the EU and bilaterally with the UK, Sweden and Denmark. It is true that beggars can’t be choosers but back in November 2010, we supposedly had funding in place for six months plus a substantial National Pension Reserve Fund, plus a valuable basket of state-owned companies which might have been sold if necessary. All of which could have stretched our own funding to 2014, and if those were the cards we needed play with, there would have been extraordinary efforts to balance our budget in less than six years. But we didn’t do that. Instead we negotiated a €85bn bailout, with €17.5bn coming from our own resources and the remainder sourced externally. The IMF is only providing a maximum of one third of the bailout, or €22.5bn and the remainder is coming from a mixture of European funds – the so-called EFSF and EFSM – and from bilateral loans from the UK, Sweden and Denmark. Back in November 2010, the British Chancellor of the Exchequer, George Osborne apparently had to convince skeptics in his own party and beyond that a bilateral loan to Ireland was a good idea. He correctly stated that Ireland was a major trading partner with the UK and accounted for more trade annually than the UK’s trade with the BRIC countries (Brazil, Russia, India and China) combined. And more than that, said the man whose family originally hailed from Tipperary and Waterford “Ireland is a friend in need and we are here to help”
And as if to prove the maxim that “no good deed goes unpunished”, no sooner had George proposed a bilateral loan agreement with Ireland and the negative Nellies were all suggesting George had ulterior motives beyond simple friendship. Britain’s New Statesman magazine suggested George was helping Ireland because Ireland had no greater cheerleader than George during the galloping 2000s as our economy grew at an average of 5.9% per annum between 2000-2007. And the New Statesman felt George was trying to save his reputation by propping up what had been the model Irish economy. Closer to home we had the temerity to suggest that British banks were heavily exposed to bonds in Irish banks and that George was only saving his chums in the City of London, by providing funds to Ireland which would then be used to repay bonds. There is certainly a giant exposure to the Irish economy generally by Lloyds/Halifax/Bank of Scotland whose local unit closed in Ireland in 2010 and transferred some €30bn of loans to run-off asset management vehicle, Certus. And RBS is also exposed to a similar extent through local unit, Ulster Bank. But regardless of George’s motives, the agreement signed between the UK and Ireland last December 2010 certainly pulls no punches in either the terms, penalties or oversight. Here’s a summary
In a couple of sentences : the UK commits to making up to GBP 3,226,960,000 available to Ireland between now and 2013, at an interest rate which is based on the cost of funds to the UK plus a 2.29% margin (about 5.8% at current rates), all repayable 7.5 years after receipt of any instalment and there are other fees including commitment fees as well as rights of audit. The UK will make a profit of approximately GBP 0.5bn on the deal.
How much?
And specifically payable after IMF/EU reviews (the third of which is happening right now)
How long are the loans for?
At what interest rate? Currently 7 year swaps at 3.5%, so with the 2.29% margin, it’s approximately 5.8%
Other fees? Yes, indeed
Rights of Inspection. Potentially intrusive but seemingly dependent on Ireland’s engagement with the IMF and EU.
“It is still unclear why Ireland did not seek 100% of its bailout from the IMF.”
Eh, I think it’s abundantly clear – the IMF would have done a Latvia on us. There wouldn’t have been nearly so much money on offer, a shorter timeframe for a return to stability, our friends in the banks would have been busted all the quicker…
Pick one, pick them all, there’s a reason for every crony on the quango, er, in the audience…
@yoganmahew,.
“there wouldn’t have been nearly so much money on offer”
maybe but the IMF had at least €22.5bn on offer presumably, as that is what is presently earmarked by the IMF for the Irish bailout.
“a shorter timeframe for a return to stability” Like that suggested by Colm McCarthy – “What’s wrong with 7, 3, zero for 2012, 2013 and 2014?” – http://www.irisheconomy.ie/index.php/2011/06/26/spreading-contagion/#comment-154007
“our friends in the banks would have been busted all the quicker” – Eh? Tongue firmly in cheek?
And as for Latvia, you mean our neighbours with a highish unemployment rate of 17% which is of course worse than our own 14.2% but apart from that, 48% debt:GDP (aah, can you remember when ours wasn’t close to 100%), deficit:GDP -4.5% (aah, can you remember when ours was less than 10%), 2011 GDP growth 3.3% (aah, well you get the picture). The figures for Latvia are sourced from the EU Spring forecast 2011
Click to access lv_en.pdf
Come now NWL, you know I’ve been calling for a swift cut of the deficit since, ooh, 2008… I even put up ways to do it.
“our friends in the banks”, you know, the heroes of our glorious state, feted by our fat, I mean, dear leader and our previous liar, I mean, verbally-challenged leader; the ones who gave us the 110% mortgage, the interest only, self-certified, no money down, investment loan, but still managed to have “no sub-prime in Ireland”.
The Latvia bit was the bit that was tongue in cheek. I’m well aware that none of the apologists for the drawn out torture want to acknowledge what has been achieved there. It is, after all, in the “east” – mysterious, ineffable even, shure they still eat their young there…
Addictive reading as always NWL.
My view on why 100% of the loan didn’t come from the IMF is that it simply could not afford to lend us more without putting its own solvency on the line. In fact, its loan to Ireland is one of its largest ever as a portion of Ireland’s stake in the organisation. I think if there was any possibility of an IMF-only loan it would have been more attractive than the alternatives. And you’re right of course, the UK loan is about covering potential losses. I wonder if Ireland was to restructure/reschedule the UK portion of the exposure would they have/still extended this loan? Now that would indicate friendship.
“It is still unclear why Ireland did not seek 100% of its bailout from the IMF.”
Because it’s an “extend and pretend” loan and the IMF doesn’t do this type of loan. Realistically, the only portion of the loan that will be fully repaid is the IMF’s. The EU and the UK are only lending the money to prevent us from stiffing their banks and to buy time. The quid pro quo for Ireland is that it gets to live beyond its means for a few more years.
I tend to agree with you. The lads at the top know this too so they are filling their bellies like camels until they burst.
When the real cruch comes they will have loads of fat to survive and laugh at the rest of the idiots. Cute hoors to a man.
If all the loans were IMF then the US would be too involved. The US is not part of the UK/EU loans, and maybe that is why the UK/EU loans exist. So it costs a bit more, but that’s the price of keeping the US at arms length…. we wouldn’t want them building Disneyland, in say, Leixlip would we?
also
I’m guessing the IMF would have been eager to have some partners. Rescuing Ireland is surely a very dodgy bet for the careers of some. I am not surprised the whole thing was ‘shared around’.
What was the share between UK and Sweden/DK? I also wonder if SE/DK had the same conditions on the loans – in such case how much were their share?
Thanks,
Anders
@Anders, last November 2010 the announced shares for the European element of the bailout were
European Financial Stability Fund, EFSF (€17.7bn ), European Financial Stability Mechanism (€22.5bn), bilateral loans from the UK (€3.8bn ), Denmark (€0.393m) and Sweden (€0.598m).
The Irish Department of Finance has a dedicated web page for bailout documents and it would seem that an actual agreement has not been concluded with either Denmark or Sweden.
http://www.finance.gov.ie/viewdoc.asp?DocID=6856
Thanks,
Curious why only the UK and not DK/SE went through.
Maybe the Scandinavians are just slow. The DK ministry of Finance asked parliament to approve the loan deal in April 2011 (Danish):
http://www.ft.dk/samling/20101/aktstykke/Aktstk.108/982986.pdf
Anders
Personally I think that once the IMF were involved in our bailout the EU had to get involved – otherwise sensible economic policies like burning the bondholders would have been on the cards, where would that have left Franco-German banks.
Likewise, once the EU were involved the UK had to lump in as well to try and protect their own banks. Ditto Denmark. Sweden??