Electronic Assignment Cover sheet

Course Title: MSc International Banking and Finance

Module/Subject Title:

International Financial Institutions and Markets

Assignment Title:

Ireland`s bailout by Europe and the IMF

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8 7.1 5. The costs of bailing out the banks: selected countries as at March 2011. Particular attention has focused on the debt of the so called PIIGS economies—Portugal. percent of 2010 GDP Country Ireland Netherlands Germany UK USA Greece Belgium Spain Direct support 30.4 0.3 8.1 0. Governments almost everywhere have adopted programmes of major cuts and reductions in public spending on a scale not seen for decades.3 2. Greece and Spain.7 6.2 5.0 10.0 14.9 Net direct cost 28. Ireland.1 1.9 Recovery 1.0 Source: IMF (2011) Fiscal Monitor.1 4.2 0.7 6. The cost to governments of bailing out the banks has been huge: Table 1. (Kitson.4 10. Ireland had to adopt one of the toughest budgets in the nation’s history.0 4.4 5. Italy. April (p. 8).0 3.IRELAND`S BAILOUT BY EUROPE AND THE IMF CONTEXT One of the consequences of the banking crisis and the recession it provoked has been sharp rises in levels of gross government debt in almost every Western European country. Martin and Tyler. 2011) 2 .1 2.8 0.1 1.

and so the government started negotiations with the EU. the Greek government requested the EU/IMF bailout package (made of relatively high-interest loans) to be activated. The EU-IMF loan agreement which the Irish government finally agreed in November 2010 was shaped by a variety of competing objectives. This had a negative impact on Irish government bonds. On 9 May 2010. despite all the measures taken. NAMA purchased over 80 billion euro in bad loans from the banks as the mechanism for this transfer. In April 2011. 2011. Europe's Finance Ministers approved a rescue package worth €750 billion aimed at ensuring financial stability across Europe by creating the European Financial Stability Facility (EFSF). Ireland could have guaranteed bank deposits and let private bondholders who had invested in the banks face losses. Moody's downgraded the banks' debt to junk status. but from the state guarantee blanket for the six main Irish-based banks that financed the property bubble. The initial size of the loan package was €45 billion ($61 billion) and its first installment covered €8. On 23 April 2010. In return the government agreed to reduce its budget deficit to below three percent by 2015. resulting in a €67. IRELAND`S BAILOUT By September 2010 the banks could not raise finance and the bank guarantee was renewed for a third year. the government received €85 billion. Together with additional €17. among them:   the need to protect European Central Bank liquidity to prevent broader European financial sector losses. the yield on the benchmark 10-year bond breaking the sky-high 9% barrier. much of it related to defaulted loans to property developers and homeowners made during the property bubble.5 billion of Greek bonds. Denmark and Sweden.Irish banks had lost an estimated 100 billion euro. shifting the losses and debt to its taxpayers. Government help for the banks rose to 32% of GDP. The Irish sovereign debt crisis was not based on government over-spending. the IMF and three nations: the United Kingdom. 3 . The Irish economy collapsed during 2008.5 billion coming from Ireland's own reserves and pensions. as in the case of Greece. but instead borrowed money from the European Central Bank to pay these bondholders. of which €34 billion were used to support the country's ailing financial sector. In February the government lost the Irish general election. which burst around 2007.5 billion "bailout" agreement of 29 November 2010.

2010). expecting the country to stand on its own feet again and finance itself without any external support from the second half of 2012 onwards. As a result of the improved economic outlook. 4 . SOME POSITIVE OPINIONS The Euro Plus Monitor report from November 2011 attests to Ireland's vast progress in dealing with its financial crisis. According to the Centre for Economics and Business Research Ireland's export-led recovery "will gradually pull its economy out of its trough". the cost of 10-year government bonds. to limit German taxpayer exposure to the need to ‘bail out’ weaker economies (Hardiman. which has already fallen substantially since mid July 2011 is expected to fall further to 4 per cent by 2015.

5bn rescue package from the IMF.2bn bailout from the IMF. 5 . we can see that five countries that faced meltdown in the past 20 years have all recovered – with or without IMF bailouts:    Thailand: Is where the Asian Financial Crisis started in 1997 . Brazil: In November 1998. the country had been forced to accept a $41.Looking behind. Russia: A fall in global commodities prices was the key reason why Russia defaulted on its domestic debt in 1998.Thailand accepted a $17. after economic crises in Asia and Russia seriously affected Brazilian economy.

Iceland was forced to go to the IMF.1bn loan. terms of Irish bailout deal changed in better in September 2011.htm Kitson. In effect.full. Under proposals adopted by the European Commission. Iceland: In 2008. The new financial terms are considered to bring enhanced sustainability and improved liquidity outlooks to Ireland as well as more confidence in the markets. Rich (2010) EU unveils Irish Bailout [online] http://money. this means that the EC will now only charge Ireland what it costs them to borrow the monies it uses to fund the loan. reduced interest rate margins and extended loan maturities are to apply to funds provided by the EU under the European Financial Stabilisation Mechanism (EFSM). Suzanne (2011) Terms of Irish bailout changed. Economy and Society 2011.925 per cent which applies to Ireland will be reduced to zero.cnn. which provided a $2. 2011) REFERENCES: Barbieri. The geographies of austerity. Martin and Tyler (2011). while the maximum payback timeframe will double from 15 to 30 years. The Irish Times 6 . Cambridge Journal of Regions.oxfordjournals. and by the end of the year the national debt had hit 240% of GDP.com/2010/11/28/news/international/ireland_bailout/index. 289–302 [online] http://cjres. the banks started to run out of cash. 4. The current margin of 2. The changes will apply to alreadydispersed tranches as well as future tranches.pdf Lynch.org/content/4/3/289. In addition. (Lynch. the Icelandic krona plummeted.  Argentina: Suffered an economic crash in 2001-2002 which called into question the economic survival of the nation.

com/doc/72779953/Euro-Plus-Monitor-2011 The Guardian (2010) Can Ireland bounce back? How five other nations fared in financial crisis.uk/world/2010/nov/26/ireland-bounce-back-five-crisis 7 . [online] http://www.publicserviceeurope.irishtimes.com/article/790/ireland-set-for-strong-recovery-after-bailout The 2011 Euro Plus Monitor.http://www.com/newspaper/breaking/2011/0914/breaking27.html Manson.scribd.co. Berenberg Bank and the Lisbon Council [online] http://www. Daniel (2011) Ireland set for strong recovery after bail-out [online] http://www.guardian.

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