Council Implementing Decision of 7 December 2010 on granting Union financial assistance to Ireland (2011/77/EU)

Article 1

1. The Union shall make available to Ireland a loan amounting to a maximum of EUR 22,5 billion, with a maximum average maturity of 7½ years.

2. The financial assistance shall be made available during 3 years starting from the first day after the entry into force of this Decision.

3. The Union financial assistance shall be made available by the Commission to Ireland in a maximum of 13 instalments. An instalment may be disbursed in one or several tranches. The maturities of the tranches under the first instalment may be longer than the maximum average maturity referred to in paragraph 1. In such cases, the maturities of further tranches shall be set so that the maximum average maturity referred to in paragraph 1 be achieved once all instalments have been disbursed.

4. The first instalment shall be released subject to the entry into force of the Loan Agreement and the Memorandum of Understanding. Any subsequent loan releases shall be conditional upon a favourable quarterly assessment by the Commission, in consultation with the ECB, of Ireland’s compliance with the general economic policy conditions as defined by this Decision and the Memorandum of Understanding.

5. Ireland shall pay the actual cost of funding of the Union for each tranche plus a margin of 292,5 basis points, which results in conditions similar to those of the IMF support.

6. In addition, costs referred to in Article 7 of Regulation (EU) No 407/2010 shall be charged to Ireland.

7. If required in order to finance the loan, the prudent use of interest rate swaps with counterparties of the highest credit quality shall be permitted.

8. The Commission shall decide on the size and release of further instalments. The Commission shall decide on the size of the tranches.

Article 2

1. The assistance shall be managed by the Commission in a manner consistent with Ireland’s undertakings and with recommendations by the Council, in particular the Recommendations addressed to Ireland in the context of the implementation of its National Reform Programme as well as in the context of the implementation of the Stability and Growth Pact.

2. The Commission, in consultation with the ECB, shall agree with the Irish authorities the specific economic policy conditions attached to the financial assistance as set out in Article 3. Those conditions shall be laid down in a Memorandum of Understanding to be signed by the Commission and the Irish authorities consistent with the undertakings and recommendations referred to in paragraph 1. The detailed financial terms shall be laid down in a Loan Facility Agreement to be concluded with the Commission.

3. The Commission, in consultation with the ECB, shall verify at regular intervals that the economic policy conditions attached to the assistance are fulfilled, and report to the Economic and Financial Committee before disbursement of each instalment. To this end, the Irish authorities shall cooperate in full with the Commission and the ECB, and shall place all the necessary information at their disposal. The Commission shall keep the Economic and Financial Committee informed of possible refinancing of the borrowings, or restructuring of the financial conditions.

4. Ireland shall adopt and implement additional consolidation measures to ensure macro-financial stability, in case such measures will be necessary during the programme of assistance. The Irish authorities shall consult the Commission and the ECB in advance of the adoption of any such additional measures.

Article 3

1. The economic and financial adjustment programme (the ‘Programme’) prepared by the Irish authorities is hereby approved.

2. The disbursement of each further instalment shall be made on the basis of a satisfactory implementation of the Programme to be included in the Stability Programme of Ireland, in the National Reform Programme and, more particularly, the specific economic policy conditions laid down in the Memorandum of Understanding. These shall include, inter alia, the measures provided for in paragraphs 4 to 9 of this Article.

3. The general government deficit shall not exceed 10,6 % of projected GDP in 2011, 8,6 % of GDP in 2012 and 7,5 % of GDP in 2013, in order to place Ireland on track to reduce the deficit to below 3 % of GDP by 2015. The projected annual deficit path does not incorporate the possible direct effect of potential bank support measures in the context of the government’s financial sector strategy as set out in the Memorandum of Economic and Financial Polices and specified in the Memorandum of Understanding. Further, this path is consistent with the preliminary view of the Commission (Eurostat) on the ESA95 accounting treatment of time of recording of interest payments on promissory notes payable to Anglo Irish Bank(1), such that a revision of that view would result in a revision of the deficit path.

4. Ireland shall adopt the measures specified in paragraphs 7 to 9 before the end of the indicated year, with exact deadlines for the years 2011-2013 being specified in the Memorandum of Understanding. Ireland shall stand ready to take additional consolidation measures to reduce the deficit to below 3 % of GDP by 2015 in case downside risks to the deficit targets specified in paragraph 3 of this Article materialise.

5. With a view to restoring confidence in the financial sector, Ireland shall adequately recapitalise, rapidly deleverage and thoroughly restructure the banking system as set out in the Memorandum of Understanding. In that regard, Ireland shall develop and agree with the European Commission, the ECB and the IMF a strategy for the future structure, functioning and viability of the Irish credit institutions which will identify how to ensure that they are able to operate without further state support. In particular, Ireland shall:

(a) take action to ensure that Allied Irish Banks, Bank of Ireland, Educational Building Society and Irish Life and Permanent are recapitalised in the form of equity, if needed, so as to ensure that the minimum capital requirement of 10,5 % core tier 1 capital will be maintained, depending on the results of the Prudential Capital Adequacy Review for 2011;

(b) implement the divestiture of participations in banks acquired during the crisis within the shortest timeframe possible, in a manner compatible with financial stability and public finance considerations;

(c) implement a specific plan for the resolution of Anglo Irish Bank and Irish Nationwide Building Society, which will seek to minimise capital losses arising from the working out of these non-viable credit institutions;

(d) by the end of 2010, submit draft legislation to the Oireachtas (Parliament) on financial stabilisation and restructuring of credit institutions which will, inter alia, address burden sharing by subordinated debt bond holders;

(e) by the end of March 2011, submit draft legislation to the Oireachtas on a special resolution regime for banks and building societies, and improved procedures for early intervention in distressed banks by the Central Bank of Ireland.

6. Ireland shall adopt the following measures before the end of 2010:

Adoption of a budget for 2011 including fiscal consolidation measures in a total amount of EUR 6 billion aiming at a reduction of the general government deficit within the timeframe referred to in paragraph 3. The budget shall include revenue measures to raise at least EUR 1,4 billion in 2011, including a lowering of personal income tax bands and credits or equivalent measures to yield EUR 945 000 000 in 2011; a reduction in pension tax relief and pension related deductions to yield EUR 155 000 000 in 2011; a reduction in general tax expenditures to yield EUR 220 000 000 in 2011; increases in excises and miscellaneous tax measures to raise EUR 80 000 000 in 2011. In addition, the budget shall specify that the government will outline methods to raise at least EUR 700 000 000 in one-off and other measures in 2011. The budget shall also include a reduction of current expenditure in 2011 of at least EUR 2,09 billion, including: social protection expenditure reductions; a reduction of public service employment; a reduction of existing public service pensions on a progressive basis averaging over 4 %; other expenditure savings, including cuts in goods and services spending and in other transfer payments; a reduction of at least EUR 1,8 billion in public capital expenditure against existing plans for 2011. In exceptional circumstances, other measures yielding comparable savings shall be considered, in close consultation with the Commission.

7. Ireland shall adopt the following measures during 2011, in line with specifications in the Memorandum of Understanding:

(a) a 10 % pay reduction for new entrants to the public service. The Irish government shall also consider an appropriate adjustment, including in relation to the public service wage bill, to compensate for potential shortfalls from projected savings from administrative efficiencies and public service numbers reductions;

(b) the adoption of a budget for 2012 including fiscal consolidation measures amounting to at least EUR 3,6 billion and aiming at a reduction of the general government deficit within the timeframe referred to in Article 3(3). The draft budget shall, in particular, include revenue measures to yield EUR 1,5 billion in a full year including, inter alia: a lowering of personal income tax bands and credits; a reduction in private pension tax relief; a reduction in general tax expenditure; a new property tax; a reform of capital gains tax and capital acquisitions tax; and, an increase in the carbon tax. The budget shall provide for a reduction of expenditure in 2012 of EUR 2,1 billion including social expenditure reductions; cuts in public sector employment; adjustments in public sector pensions and in other expenditure set out in the Programme; and reductions in capital expenditure;

(c) the finalisation of an independent assessment of transfer of responsibility for water services provision from local authorities to a water utility, and preparation of proposals for implementation with a view to starting charging in 2012-2013;

(d) the adoption of legislation to increase the state pension age to 66 years in 2014, 67 in 2021, and 68 in 2028, with a view to enhancing the long-term sustainability of the public finances. Further, pension entitlements for new entrants to the public service shall be reformed with effect from 2011. This shall include a review of accelerated retirement for certain categories of public servants and an indexation of pensions to consumer prices. Pensions shall be based on career average earnings. New entrants’ retirement age shall be linked to the state pension retirement age;

(e) the adoption of measures reinforcing a credible budgetary strategy and strengthening the budgetary framework. Ireland shall adopt and implement the fiscal rule that any additional unplanned revenues in the period 2011-2015 will be allocated to deficit and debt reduction. In accordance with the proposal set out in the National Recovery Plan 2011-2014, Ireland shall establish a budgetary advisory council to provide an independent assessment of the government’s budgetary position and forecasts. Ireland shall adopt a fiscal responsibility law introducing a medium-term expenditure framework with binding multi-annual ceilings on expenditure in each area. This shall be adopted taking into account any revised economic governance reforms at the level of the Union and shall build on reforms already in place;

(f) Ireland shall adopt legislative changes to remove restrictions to trade and competition in sheltered sectors including the legal profession, medical services and the pharmacy profession;

(g) the recapitalisation of Irish domestic banks to an initial level of 12 % core tier 1 capital, taking account of haircuts on the additional loans to be transferred to NAMA, and funding of early deleveraging by making available EUR 10 billion in the system. The recapitalisation shall take the form of equity shares (or equivalent instruments for the Educational Building Society);

(h) the introduction of legislation to reform the minimum wage in such a way to foster job creation and act to prevent distortions caused by sectoral minimum wages, and undertaking, in agreement with the Commission, an independent review of the framework Registered Employment Agreements and Employment Regulation Orders;

(i) a reform of the unemployment benefit system to enhance incentives for an early exit from unemployment. Activation measures shall be strengthened by better identifying job seekers’ needs, enhancing engagement, and developing sanctions to ensure job search or training by beneficiaries; this shall be underpinned by more effective monitoring. The sanctions mechanism shall be set to cause an effective loss of income without being excessively penal;

(j) the publication of an in-depth review of the personal debt regime, and start of work on a reform of legislation which will balance the interests of both creditors and debtors;

(k) the preparation of a report providing an independent assessment of the electricity and gas sectors to assist with public financing needs, as well as to increase competition. The Irish authorities shall consult with the Commission on the results of this assessment with a view to setting appropriate targets;

(l) enhancing competition in open markets; legislation shall be reformed to generate more credible deterrence by providing for the possible imposition of fines and other sanctions in competition cases. In addition, the competition authorities will be required to identify sectors which are effectively outside the scope of competition law and identify processes to address those exclusions;

(m) encouraging growth in the retail sector; the government will conduct a study to examine the economic impact of eliminating the current cap on the size of retail premises with a view to enhancing competition and lowering prices for consumers. Implementation of the policy of the study will be discussed with the Commission.

8. Ireland shall adopt the following measures during 2012, in line with specifications in the Memorandum of Understanding:

(a) the adoption of a budget for 2013 including fiscal consolidation measures amounting to at least EUR 3,1 billion aiming at a reduction of the general government deficit within the timeframe referred to in Article 3(3). In particular, the budget shall include revenue measures to raise at least EUR 1,1 billion (inclusive of carryover from 2012), including: a lowering of personal income tax bands and credits; a reduction in private pension tax relief; a reduction in general tax expenditures and an introduction of property tax. The budget shall also provide for a reduction in expenditure in 2013 of at least EUR 2 billion, including: social expenditure reductions; a reduction of public service employment; public service pension adjustments; cuts in other expenditure set out in the Programme; and reductions in capital expenditure;

(b) the submission of legislation to the Oireachtas to reform the personal debt regime with a view to ensuring a better balance of the interests of both creditors and debtors.

9. In order to ensure the smooth implementation of the Programme’s conditionality, and to help to correct imbalances in a sustainable way, the Commission shall provide continued advice and guidance on fiscal, financial market and structural reforms. Within the framework of the assistance to be provided to Ireland, together with the IMF and in liaison with the ECB, it shall periodically review the effectiveness and economic and social impact of the agreed measures, and shall recommend necessary corrections with a view to enhancing growth and job creation, securing the necessary fiscal consolidation and minimising harmful social impacts, particularly regarding the most vulnerable members of Irish society.

Article 4

Ireland shall open a special account with the Central Bank of Ireland for the management of the Union financial assistance.

Article 5

This Decision is addressed to Ireland.

Article 6

This Decision shall be published in the Official Journal of the European Union.

Done at Brussels, 7 December 2010.

For the Council

The President

D. Reynders