2nd Oct 2023

EU agrees €85 billion Irish rescue, Dublin to raid pensions fund

  • Dublin high street: Irish pension funds are in the firing line (Photo: UggBoy♥UggGirl)

European Union finance ministers have agreed to a three-year €85 billion rescue plan for Ireland with strict conditions attached, including a draconian €15 billion austerity programme from the governing Fianna Fail and Green parties.

The scheme agreed late Sunday evening (28 November) will see an immediate €10 billion issued to recapitalise Irish banks along with another €25 billion in contingency funding set aside ready to be used should the banking system require additional sums.

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The lion's share of the monies, €50 billion, are to go on shoring up government finances.

The International Monetary fund will contribute some €22.5 billion and the package will also include three separate bilateral loans from non-eurozone EU member states Denmark, Sweden and the UK.

However, Ireland is being forced to stump up €17.5 billion of the overall amount itself to save the banks.

The country must deliver €5 billion out of its own cash resources and raid €12.5 billion out of the National Pensions Reserve Fund. The NPRF, a €24.5 billion piggy bank set up to cover growing pensions costs in the coming decades, will have to sell off half of the shares, property and other investments it owns. Instead of using the money to stimulate the economy, it must now be used to soak up the debts of the banks.

Ireland has however been given an extra year to trim its deficit down to three percent of GDP to be in line with EU rules.

The average interest rate of the loans comes to 5.8 percent, sharply up on the 5.2 percent charged to Greece on its bail-out cash, but much lower than the record nine percent markets are demanding.

Interest payments alone will represent a full 20 percent of government revenues in 2014.

Dublin must also submit to quarterly reviews on its progress, performed by a team of inspectors from the European Commission, the European Central Bank and the International Monetary Fund, in order for tranches of the money to be released, similar to the arrangement with Athens.

In return for the rescue, Ireland must deliver a restructuring of its banking system and contract its budget deficit to EU standards, but the bulk of the conditionality relates to cutting the cost of labour.

Public sector pensions will be cut down by four percent, while the minimum retirement age will jump to 66 by 2014 and 67 by 2021.

The government is also required to introduce a 'fiscal responsibility law,' to cap spending in a range of sectors.

Meanwhile, France and Germany also agreed on the weekend to new proposals for a permanent European rescue mechanism, following discussions between Chancellor Angela Merkel, French President Nicholas Sarkozy and commission and ECB officials.

Replacing the current €440 emergency fund, the new mechanism would force private lenders to participate in any debt restructuring, but only after the 2013 expiry of the existing fund.

On Saturday, tens of thousands of Irish people descended upon the streets of the capital to express their fury at the deal with the EU-IMF-ECB troika.

According to police, some 50,000 braved the freezing weather, while according to organisers the crowd numbered 100,000, representing between 2.5 and 5 percent of Ireland's workforce.

The demonstration was boisterous but largely peaceful other than a handful of fireworks shot at the gates of the parliament.

Union leaders David Begg of the Irish Congress of Trade Unions and Jack O'Connor of the country's largest union, Siptu, were booed by many in the crowd, with protesters complaining that they only wanted to negotiate with the government over a longer time period for the imposition of cuts.

Economic gloom poses problems for bailed-out countries

Recession-hit Portugal is likely to miss its deficit target this year, the troika of international lenders is expected to conclude in September. Meanwhile, lower growth in Ireland may also bring troubles further down the road.

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