Ireland’s department of finance has released the draft loan program agreement with the European Union and IMF.Â It is still preliminary and subject to various approvals, but the government was under pressure to show the basics of what had been agreed prior to the budget vote on 7 December.Â A quick perusal of the document reveals the following:
The EFSF apparently asked the government to post collateral for the EFSF loan.Â This rumour had circulated during the negotiations but a reference in the letter confirms it.Â But the government found “legal and economic constraints” to do it … those acquired-helpnessness Irish lawyers strike again.Â Â Anyway, the apparent disagreement over collateral provides indications both of the risk EFSF may see in the package, and so the interest rate that has drawn so much attention.
In the better-late-than-never department, the opening letter includes the statement “The Irish owned banks were much larger than the size of the economy.”Â The government may be groping towards an understanding of the difference between “Irish banking system” and “Irish banks.”
The government is leaving open the option of more wage or number cuts in the public sector (p13) … it will consider “an appropriate adjustment, including to the overall public sector wage bill, to compensate for potential shortfalls in projected savings arising from administrative efficiencies and public service numbers reductions.”Â Note that under the Croke Park Agreement, those savings are supposedly pledged to reversing previous wage cuts, in reverse order of wage level.Â But now it appears that those savings are part of the fiscal targets and wages/numbers may be on the table to meeting them.Â Note: that’s a 2011 decision, left to a future government as the current one feathers its personal nests.
Bank resolution legislation is coming (various described as end December or February); under it, the Central Bank can appoint a special manager, transfer assets and liabilities of distressed institutions, and establish bridge banks.Â It is unclear whether this is the same as or separate from legislation that will impose burden sharing on subordinated bondholders in banks.
Finally, it looks like the deficit targes are being set in currency terms and not in percentage of GDP, which may indicate some thinking that the ratios have been misleading or added statistical doubt to the numbers.Â And, in the final sign of how there’s a new sheriff in town, there will be a lot of new monitoring and reporting to overseas agencies under the agreement.