Ireland Bailout basics

 Actually there are no basics. It is a mishmash arrangement with multiple institutions involved.

The total plan amounts to EUR 85 bn (around USD 110 bn). Here is how the funds are arranged:

Where are the funds coming from in Bn Euros
Domestic Ireland sources
(Treasury cash buffer and
National Pension Reserve Fund)
External Sources 67.5
  IMF 22.5
  Europe 45
    European Fin Stability Mechanism 22.5
    European Fin Stability Facility 17.7
    UK 3.8
    Sweden 0.6
    Denmark 0.4
Total Funding 85

It is interesting to note that Ireland itself contributes EUR 17.5 bn to the bailout fund. And uses Treasury reserves (where does this come from) and National pension reserve fund. Why use Pension reserve fund? They could have left it untouched and asked others to chip in. Also this EFSF and EFSM role is not clear.

 And how are the funds to be deployed? Eur 35 bn for banks and Eur 50 bn for Irish govt. deficit.

Utilisation of Funds  
For Bank support 35
Bank recap measures 10
Bank contingency measures 25
Budget financing needs 50
Total 85

EFSF was developed as the main facility for future bailouts and was made a EUR 750 bn fund. But its contribution is just about EUR 17.7 bn.

Reactions from experts are well expected. Not many are happy. Eurointelligence has more news and reactions

And then EU released a statement making this crisis resolution facility permanent as EFSF expires in 2013. The new facility is called European Stability Mechanism:

On 28 – 29 October the European Council agreed on the need to set up a permanent crisis mechanism to safeguard the financial stability of the euro area as a whole. Eurogroup Ministers agreed that this European Stability Mechanism (ESM) will be based on the European Financial Stability Facility capable of providing financial assistance packages to euro area Member States under strict conditionality functioning according to the rules of the current EFSF.

The ESM will complement the new framework of reinforced economic governance, aiming at an effective and rigorous economic surveillance, which will focus on prevention and will substantially reduce the probability of a crisis arising in the future.

It will allow private sector to participate in the fund:

Rules will be adapted to provide for a case by case participation of private sector creditors, fully consistent with IMF policies. In all cases, in order to protect taxpayers’ money, and to send a clear signal to private creditors that their claims are subordinated to those of the official sector, an ESM loan will enjoy preferred creditor status, junior only to the IMF loan. 

It talks about including collective action clauses.  I have still not understood the whole thing clearly.


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