EN 
  EUROPEAN COMMISSION 
Brussels, 3.12.2010 
SEC(2010) 1516 final 
  
COMMISSION STAFF WORKING PAPER 
Ireland financial assistance programme documents 
  
Accompanying document to the 
  
Proposal for a 
 
COUNCIL DECISION 
 
on granting Union financial assistance to Ireland 
   
COM(2010) 730 final 
EN   EN Ireland Financial Assistance Programme  
 
1. Letter from Irish authorities        3 
2. Memorandum of Economic and Financial Policies     6 
3. Table of fiscal measures        15 
4. Financing needs         18 
5. Memorandum of Understanding on Specifi c Economic Policy Conditionality 19 
6. Technical Memorandum of Understanding      39 
7. Detailed macroeconomic projections       42 
  
 
     Dublin, December xx, 2010 
 
Mr Jean-Claude Juncker 
President  Eurogroup  Mr Didier Reynders European Union Presidency  Mr Olli Rehn Commissioner  European Commission  
Mr Jean-Claude Trichet 
President  European Central Bank 
  Dear Messrs. Juncker, Reynders, Rehn and Trichet,  1.      Ireland faces an economic crisis  without parallel in its rece nt history. The problems of 
low growth, doubts about fiscal sustainability, and a fragile banking sector are now feeding 
on each other, undermining confidence. To break  this vicious circle , we are proposing a 
strong, wide-ranging, reform pr ogramme, backed by a substantial international financing 
package, to restore confidence and return the ec onomy to a path of su stained growth and job 
creation. 
2.      At the root of the problem is a domestic banking system, which at its peak was five 
times the size of the economy, and now is under severe pressure. The Irish owned banks were 
much larger than the size of the economy. Th e fragility of the banking sector is undermining 
Ireland’s hard-earned economic credibility and adding a severe burden to acute public finance challenges. Decisive actions to restor e the strength of the fi nancial sector and re-
establish fiscal credibility are needed now.  
3.      The Irish authorities have al ready undertaken major steps to  address these challenges. 
For the financial sector, these include measures  to facilitate funding of banks, separate good 
assets from bad, asset disposals, and bank r ecapitalisation. On the fiscal side, we have 
pursued a large consolidation programme since 2008 and have announced a National Recovery Plan that accelerates the process of putting public finances on a sound footing. 
4.      But we recognize that more  needs to be done. A f undamental downsizing and 
reorganisation of our banking system is essent ial. We are immediat ely undertaking several 
bold measures to achieve a robust, smaller, an d better capitalised banking system that will 
effectively serve the needs of the economy. Restoring the banks to viability will also help 
3 
 
 insulate public finances from further pressures. We are mindful that the transition to a 
healthy banking sector will need to be actively managed to avoid fire sales of assets and reduce market uncertainty. We are, therefore,  expeditiously raising capital standards, 
stepping up efforts that will ensure that banks  losses are promptly recognised, and creating a 
mechanism to inject needed capital into the banks.    
5.      In addition, we are also pressing ahead with our commitment to achieving a 
sustainable budget position. The National Recovery Plan lays out our strategy for staying the 
course of needed reform in a way that is so cially fair and protect s the most vulnerable. 
Recognising that Ireland already has put in pl ace a business-friendly environment, our Plan 
also lays out a range of structural reforms that will be implemented to underpin economic 
stability, and enhance growth and job creation. 
6.      We turn to our European and international partners for support as we implement these 
far-reaching objectives. We therefore request support from the European Financial Stability Mechanism/European Financial Stability Facility  which can be drawn down over a period of 
36 months as well as bilateral loans from the United Kingdom, Sweden and Denmark; the 
overall total of this support will be €45 billion. We also send a parallel request for financial 
assistance to the IMF for a total amount of  €22.5 billion.. The judi cious use of our own 
existing financial resources (€17.5 billion) will also help ensu re financial stability as we 
restore market confidence and return to durable growth.  
7.      The attached Memorandum of Economic and Financial Policies outlines the 
economic and financial policies that the Irish Government and the Central Bank will implement during the remainder of 2010 and the period 2011–13 to strengthen Ireland’s 
banking sector and fiscal position. An a nnexed Memorandum of Understanding (MoU) 
specifies detailed economic policy measures that will serve as benchmarks for assessing 
policy performance in the context of the quart erly reviews under the financial assistance 
programme. We are confident that the policies se t forth in these memoranda are adequate to 
achieve the objectives under the programme. We  stand ready to take any corrective actions 
that may become appropriate for this  purpose as circumstances change.  
8.      The implementation of our programme will be monitored through quantitative 
performance criteria and struct ural benchmarks as describe d in the attached MEFP, and 
through the detailed and specific economic po licy criteria in the MoU. There will be 
quarterly reviews of the arrangement, in coor dination with the IMF. The reviews will assess 
progress in implementing the programme and reach understandings on any additional measures that may be needed to achieve its objectives. 
9.      The programme is designed such that it best  reflects the interest of Ireland and the 
international community. We have explored optio ns for the provision of collateral for support 
under the EFSF and found legal and economic cons traints that would risk undermining the 
goals of the programme. The conditionality  under the programme provides substantial 
4 
 
 comfort that the programme will be delivered and that the support will be repaid. We will 
ensure that the financial assistance in the context of the EFSM and EFSF and bilateral 
lenders to be provided to Ireland will be subjec t to the loan terms and conditions that will 
protect the EU's and the euro-area and EU Memb er States' financial and legal interests in a 
non discriminatory way as compared to the as sistance provided by the EU to other Member 
States under its Balance of Pa yments facility and for the EF SF adapted to take into account 
its structure and credit enhancement mechanism. 
10.      The Irish authorities believe that the policies set forth in the attached memorandum 
are adequate to achieve the objectives of our  economic programme, but stand ready to take 
any further measures that may become necessary for this purpose. The authorities will stay in 
close contact and consult with the Europ ean Commission, the ECB and the IMF on the 
adoption of these measures and in advance of re visions to the policies contained in the MEFP 
and the MoU. All available information re quested by the European Commission, the ECB 
and the IMF to assess implementation of the programme will be provided. 
 
    We are copying this letter to Mr. Stra uss-Kahn, Managing Director of the IMF. 
 Sincerely,    
/ s /        / s /  
 _________________     _________________         Brian Lenihan          Patrick Honohan   Minister for Finance              Governor of the Central Bank of Ireland 
5 
 
 Memorandum of Economic and Financial Policies 
1.      We have concluded that Ireland expeditious ly requires a strong pr ogramme to restore 
domestic and external confidence and, thus, snap  the pernicious feedback loops between the 
growth, fiscal, and financial crises.  
2.      We propose that such a programme comprise of four key elements: 
• A fundamental downsizing and reorganisa tion of the banking sector—complemented 
by the availability of capital to underpin so lvency—is required to restore confidence. 
Addressing market perceptions of weak bank capitalisation, overhauling the banks’ 
funding structure, and immedi ately beginning a process of  downsizing the banking 
system will be required. 
• An ambitious fiscal consolidation bui lding, on the progress already made.  
• Renewing growth through a multi-pronged effort.  
• A substantial external financial assistan ce will support the achiev ement of our policy 
objectives. 
Recent Economic Developments and Outlook 
3.      After two years of sharp declines in output, the Irish economy is expected to broadly 
stabilise this year before expanding during 2011–14. As domestic imbalances from the boom 
years are being repaired, the rec overy will, at least initially, be primarily export-driven. We 
project that GDP growth will increase over time as export performance filters through to 
investment and consumption, consumer confidence returns, and labour market conditions improve. We recognise that the risks in the sh ort term are tilted to the downside, and, in 
particular, the headwinds from fiscal consolid ation on domestic demand could be larger than 
anticipated. Over the longer ha ul also, continued private an d public sector balance sheet 
adjustments, coupled with a weak ba nking sector, could delay the recovery. 
4.      Inflation is expected to remain low, reflecting the large output gap and modest 
external price pressures. Alt hough the inflation rate will lik ely increase over time, it is 
expected to remain lower than in trading pa rtner countries. This will have the benefit of 
improving competitiveness but the low rates of in flation would unavoidably keep real debt 
burdens high and dampen domestic demand.  
5.      The current account balance is projected to  continue to improve gradually over the 
medium term, reflecting export expansion and th e contraction in dome stic demand. However, 
profit repatriation from multinationals and large in terest payments to foreign holders of Irish 
debt are expected to limit the im provement over the programme period. 
6 
 
 Restoring Financial Sector Viability  
 
6.      With its large size relative to the econo my, its heavy reliance on wholesale funding, 
and its large exposures to the re al estate sector, much of the domestic Irish banking system is 
in a stressed state. The Government has interven ed heavily to safeguard financial stability. In 
late 2009, we established the National Asset Management Agency (NAMA) to take over 
certain vulnerable commercial and property development assets of banks. In addition, major 
efforts have been made to boost banks’ capital. 
7.      Although the Government has made strong e fforts to contain the fallout from the 
sector’s vulnerabilities, a continued lack of  market access and the loss of deposits have 
created significant funding pressures, alleviat ed largely by an increa se in recourse to 
Eurosystem financing faciliti es and Emergency Liquidity A ssistance by the Central Bank. 
Moreover, capital injections in the banks have  placed a heavy burden on public finances.  
8.      Our proposed programme will take decisive step s to ensure the viability and health of 
the financial system. We intend to lay the foundations of this process very  quickly, if we are 
to reassure the markets that banks will return to  viability and will have the ability to operate 
without further state support in  a reasonable period of time. 
9.      The key component of our efforts is an ove rhaul of the financia l sector with the 
objective of substantial downsizi ng, isolating the non-viable parts of the system and returning 
the sector to healthy functionality. It will be important to support this process through capital 
injections into viable financial institutions. In addition, structural measures—a special 
resolution scheme for deposit-taking instituti ons and a further strengthening of the 
supervisory system—will impart greater stability to  the system. It is our goal that the leaner 
and more robust system that emerges from these efforts will not be dependent on state 
support, will have a more stable funding base, and will provide the credit required to foster 
growth.  
10.      The plan to overhaul the banking system has several elements. First, banks will be 
required to run down non-core a ssets. Second, land and developmen t property loans that have 
not yet been transferred to NAMA will also be transferred. Third, banks will be required to 
promptly and fully provide for all non-performing assets as needed. Fourth, the banks will be required to securitise and/or sell asset portfolios or divisions with credit enhancement if 
needed, once the market normalises. And finally, swift and decisive acti on will be taken to 
resolve the position of Anglo Irish Bank (Anglo) and Irish Nationwide Building Society 
(INBS) in a way that protects depositors and strengthens the banking system. To this end, by 
end-January 2011, we will submit to the Europe an Commission a revised proposal developed 
in collaboration with IMF, to resolve Anglo a nd INBS. Each of these initiatives will require 
technical or legislative measures, most of wh ich we believe can be expeditiously instituted. 
7 
 
 11.      To achieve the above goals, banks will be required to submit deleveraging plans to 
the national authorities by end-February 2011. Th e plans will be prepared on the basis of 
clear periodic targets defined by the Central Bank, taking into consid eration the Prudential 
Liquidity Assessment Review (PLAR) to be c onducted in consultation with the EC, ECB and 
IMF. By end-March 2011, the Central Bank with assistance from an internationally 
recognised consulting firm, will complete the a ssessment of the banks’ restructuring plans 
(structural benchmark). The de leveraging plans will be a co mponent of the restructuring 
plans to be submitted to the European Commi ssion for approval under EU competition rules.  
12.      This reorganisation and downsizing of the banks will be bolstered by raising capital 
standards. While we expect that, in a restructur ed system, banks will be able to raise capital 
in the market, we recognise that  the higher standards may imply that, in the short run, public 
provision of capital will be n eeded for banks that are deemed to be viable. To support this 
process—and to render it credib le—we will undertake a review of the capital needs of banks 
on the basis of a diagnostic of  current asset valuations a nd stringent stress tests (PCAR 
2011).  
• As an immediate step, to enhance confiden ce in the solvency of the banking system, 
the Central Bank will direct Allied Irish Bank (AIB), Bank of Ireland (BoI) and EBS 
to achieve a capital ratio of 12 percent co re tier 1 by end-Februa ry 2011 (structural 
benchmark) and Irish Life & Permanent by end-May 2011 (str uctural benchmark). 
This would imply an injection of fresh e quity capital of €7bn in to these four banks 
and provide an additional buffer for a potential increase in expected losses. This action, along with early measures to s upport deleveraging a nd taking account of 
haircuts on the additional loans to be transferred to NAMA (see ¶10) would result in an injection of €10bn of fresh capital in to the banking system, above and beyond the 
already committed capital injection of €6.6bn for AIB previously announced by the 
Irish authorities. 
• By end-December 2010, in consultation with EC, ECB, and IMF staff, we will define 
the criteria to run stringent stress test scenarios (structural benchmark). We will also 
agree with EC, ECB, and IMF staff,  by end-December 2010, on draft terms of 
reference for the due diligence of bank asse ts by internationally recognised consulting 
firms (structural benchmark). We intend to  complete the dia gnostic evaluation of 
banks’ assets by end-March 2011 and th e stress tests (PCAR 2011) by end-
March 2011 (both structural benchmarks ), and transparently communicate our 
findings.  
• Based on these assessments, starting e nd-April 2011, banks will be required to 
maintain a core tier 1 capital ratio of 10.5 percent. Banks will report their capital 
adequacy ratios to the Central Bank on a quarterly basis. The Central Bank’s 
assessment of banks’ capital adequacy ra tio will be made public at least semi-
annually.  
8 
 
 13.      The question of whether burden should be im posed on bank sub debt is influenced by 
two factors: the quantum of capital the State has committed to support the institution and the 
perceived viability of the bank in the absenc e of receiving such capital. Forced burden 
sharing through legislation is po ssible and legislation is current ly being prepared in this 
regard. Alternatively, in certain cases, a ve ry deeply discounted liquidity management 
exercise might also be an appropriate option.  
14.      In addition, we will finalise proposals to strengthen the legal framework for dealing 
with distressed deposit-taking institutions in line with recent EU developments (including EU 
competition rules) and international sound practic es. Such a special resolution regime will 
broaden the available resolution tools with th e aim of promoting financial stability and 
protecting depositors. In particul ar, the draft legislation will (i) provide for the appointment 
of a special manager where, in the opinion of  the Central Bank, an institution's financial 
condition has severely deteriorated ; (ii) grant powers to the Central Bank for the transfer of 
assets and liabilities to other institutions; and (iii) create a fr amework for the establishment of 
bridge banks. We seek to submit draft legisl ation including the above-mentioned elements to 
Dáil Éireann by end-February 2011 (structural benchmark). 
15.      Moreover, we will continue the efforts to strengthen banking supervision by ensuring 
higher staffing levels and budget allocations in  line with OECD best practices. We will 
enhance the risk assessment framework and raise the corporate governance standards. By 
end-September 2011, a report by an independent assessor on our complian ce with Basel core 
principles for effective banking s upervision will be made public.  
16.      We will also reform the personal insolvency regime for financially responsible 
individuals (including sole trad ers), which will balance the interests of both creditors and 
debtors. The objectives w ill be to lower the cost and incr ease the speed and efficiency of 
proceedings, while at the same time mitigating moral hazard and maintaining credit 
discipline. The new legal framework will in clude a non-judicial debt settlement and 
enforcement mechanism as an alterna tive to court-supervised proceedings. 
17.      We will continue to provide means-tested  financial assistance to limit the economic 
and social fallout of the crisis. The existing mortgage interest supplement scheme is crucial for providing temporary assistance to dist ressed mortgage holders. The scheme’s 
administration will be centralised to ensure  a more consistent application focusing on 
households that are most in need, and furthe r modification will be introduced in the 2011 
Social Welfare Act.  
18.      Our strategy for the credit uni on sector is based on three co mponents. First, we will 
complete a full assessment of their loan portfolios by end-Ap ril 2011 (structural benchmark). 
Second, by end-April 2011, we will have ready a comprehensive strategy to enhance the viability of the sector. And third, by end-December 2011 we will submit legislation to 
9 
 
 Dáil Éireann to assist the credit unions with  a strengthened regulatory framework including 
effective governance and stabilisation requirements. 
19.      We will continue efforts to ensure the flow of credit to viable businesses, building on 
actions already taken under previous recapit alisations and NAMA le gislation. Allied Irish 
Banks and Bank of Ireland have agreed, in conn ection with recapitalisation last March, to 
make available not less than €3 billion each for targeted lending for new or increased credit 
facilities to small and medium-sized enterp rises in both 2010 and 2011 as well as funds for 
seed and venture capital and for Environmen tal lending. The lending policies and decisions 
of both banks are subject to review by the Cr edit Review Office, which enables businesses 
who have had credit refused or withdrawn, to apply for an independent  review of the bank’s 
decision.  
20.      NAMA is subject to an extensive range of  statutory Governance and Accountability 
arrangements and these will be fully adhered to. Members of the NAMA Board must have relevant experience and expertis e, and the work of the Board is supported by au dit and other 
sub-committees. NAMA operations are also subject  to statutory codes of practice. NAMA is 
required to prepare various reports , including quarterly reports of its activities, and these are 
subject to scrutiny by Oireachtas committees. The Comptroller and Auditor General audit the annual accounts and prepare reports on NA MA for review by the Public Accounts 
committee. 
Safeguarding Public Finances  
21.      To continue with the programme of fis cal consolidation, a comprehensive National 
Recovery Plan 2011-14 was approved by the Government and published on 24 November 2010. This Plan forms the basis for the 2011 budge t consistent with fi scal consolidation 
measures amounting to €15 billion,  a 9 percent of GDP budgetary  correction over the period 
2011–14. Having stabilised the deficit,  albeit at a high level, the steps an nounced in the Plan 
will place the budget deficit-to-GDP ratio on a firm downward path. While the debt-to-GDP 
ratio will remain at high levels for the next fe w years, it is projected to decline thereafter, 
underpinning debt sustainability. We also propose to keep under review progress towards meeting the Stability and Growth Pact targets.  
22.      Budget 2011 which will include adjustment me asures of €6 billion, will be submitted 
to the Dáil Éireann for passage on 7 December (prior action). As set out in the National 
Recovery Plan, most of this adjustment will come from the expenditure side. The capital 
budget will be reduced, partly through greater  value for money in our infrastructure 
procurements. On current expenditures, we ar e pursuing public servi ce numbers reductions 
through natural attrition and volun tary schemes, adjustments in public service pensions, and 
further savings on social transfers (from reduc tions in working age payments, reductions in 
universal child benefit payments and other refo rms). Protecting the soci ally vulnerable at a 
time of difficult economic adjustment remains a central policy goal. Current savings will also 
10 
 
 be realised from streamlining governme nt programmes and th rough administrative 
efficiencies. Should these savings  or the expected numbers re ductions not materialise, we 
reserve the option to take further measures. 
23.      An income tax-led revenue package—sized at over €2 billion in  a full year—will 
supplement the above expenditure measures in 2011. Over the past decade, the proportion of 
citizens exempt from income tax has risen to 45 percent and tax credits have doubled, 
resulting in a comparatively low burden of ta x on ordinary incomes. This is no longer 
sustainable. Accordingly, we are widening th e tax base, by lowering income tax bands and 
credits by 10 percent, and by reducing various pe nsion-related tax reliefs. We are also taking 
action on other tax expenditures, an d distortions arising from the existence of multiple levies.  
24.      To secure our fiscal targets, a number of  fiscal measures have been identified 
for 2012–14. We will continue to rely on expend iture savings (€6.1 billion), led by current 
spending (€4.9 billion), as outlined in the Nation al Recovery Plan. We are targeting further 
reductions in public sector numbers, social benefits and programme spending, and have 
anchored the prospective savings by publishing multi-year expenditure ceilings by Vote Group through 2014. We are also planning to move towards full cost-recovery in the provision of water services and ensuring a gr eater student contribution towards tertiary 
education, while ensuring that lower-income groups remain supported. In addition, we will accelerate the process of placing the pension systems on a path consistent with long-term 
sustainability of public finances. On the ta x side, we will build on the base-broadening 
measures outlined above and establish a sound basis for sub-national finances through a new 
residential-property based si te value tax. The Finance B ill 2012 will contain necessary 
provisions to bring into effect the alr eady signalled VAT increases in 2013 and 2014. 
25.      We are preparing institutional reform of  the budget system taking into account 
anticipated reforms of economic governance at the EU level. A reformed Budget Formation 
Process will be put in place. Furthermore, we will introduce a Fiscal Responsibility Law 
which will include provision for a medium-ter m expenditure framework with binding multi-
annual ceilings on expenditure in each area by end-July 2011 (structural benchmark). A Budget Advisory Council, to provide an in dependent assessment of the Government’s 
budgetary position and forecasts will also be introduced by end-June 2011 (structural benchmark). These important reforms will enhan ce fiscal credibility and anchor long-term 
debt sustainability. 
Raising the Growth Potential 
26.      We recognise the need to restore strong sust ainable growth. The structural changes to 
the financial and fiscal sectors, described a bove, are critical for improving the prospects of 
economic recovery and raise the medium-ter m growth potential. Although, as is widely 
recognised, Ireland is a global l eader in providing a business-friendly environment, the 
National Recovery Plan includes a strategy to remove remaini ng structural impediments to 
11 
 
 competitiveness and employment creation. It also  details appropriate sectoral policies to 
encourage exports and a recovery of domes tic demand, which will also support growth and 
promote jobs. 
27.      Specifically, we will continue to press ahead with other structural reform as set out in 
the Memorandum of Understanding on sp ecific economic policy conditionality: 
• We will promote service sector growth th rough vigorous action to remove remaining 
restrictions on trade and competition, and will propose amendments to legislation to 
enable the imposition of financial and other sanctions in civil law cases relating to 
competition.  
• Building on the forthcoming report of the Re view Group on State A ssets & Liabilities 
the government will undertake an independent assessment of the electricity and gas 
sectors with a view to enha ncing their efficiency. State authorities will consult with 
the Commission Services on the results of this assessment with a view to setting appropriate targets for the possible pr ivatisation of state-owned assets.  
• To reduce long-term unemployment and to f acilitate re-adjustment in the labour 
market, we will reform the benefits syst em and legislate to reform the national 
minimum wage. Specifically, changes will be  introduced to create  greater incentives 
to take up employment.  
Programme Financing 
28.      Ireland is facing large and medium-term balan ce of payments needs that arise from (i) 
substantial pressures on the capital account that need to be reliev ed, and (ii) the need to build 
up reserves to improve banks’ ab ility to meet their large exte rnal debt rollover needs. The 
programme’s success is dependent on substantive external financial assistance. This external 
financing will serve as a bridge during the implementation of the critical reforms to 
fundamentally restructure the banking system and restore fiscal sustainab ility. It is our view 
that, given Ireland’s medium-ter m structural adjustment needs, an arrangement under the 
Extended Fund Facility (EFF) would be appropria te. Such an arrangement would also have 
the added benefit of a more realis tic repayment schedule for Ireland. 
29.      Notwithstanding the large fiscal adjustment, we estimate the financing need to be up 
to €85 billion until the end of 2013. This includes a contingency element for bank recapitalisation. An amount of €17.5 billion will  be covered by an Irish contribution through 
the Treasury cash buffer and investments of the National Pension Reserve Fund. We expect 
commitments from the IMF under the Extended Arrangement to amount to €22.5 billion and 
EU financial support from the European Financ ial Stability Mechanism/European Financial 
Stability Facility and bilatera l arrangements to amount to € 45 billion. Ireland will draw on 
these resources in parallel throughout the programme peri od. While the envelope of 
resources to be provided to Ir eland is a source of reassurance to the authorities and to 
12 
 
 financial markets, we plan to draw pari pa ssu on IMF and EU financial support on an as 
needed basis. Moreover, if market access is restored on a sustainable basis, we would 
anticipate paying down the drawings made on an advanced schedule.  
30.      We are confident that the implementation of the fiscal and ba nking sector reforms 
will help the economy recover. 
Programme Monitoring 
31.      Progress in the implementation of th e policies under the programme will be 
monitored through quarterly an d continuous performance crit eria, indicative targets, 
structural benchmarks, and quarterly program me reviews and complia nce with requirements 
under the Excessive Deficit Procedure (EDP).  The attached Technical Memorandum of 
Understanding (TMU) defines the quantitative pe rformance criteria and indicative targets 
under the programme. The Government’s targ ets for the exchequer balance (central 
government cash balance) excluding interest payments will be monitored through quarterly 
performance criteria and net central government de bt will be an indicative target (Table 1). 
As is standard in IMF arrangements, there will  be a continuous performance criterion on the 
non-accumulation of external payment arrears. Progress on implementing structural reforms 
will be monitored through structural benchm arks (Table 2). A joint EC-ECB Memorandum 
of Understanding specifies, notably, the struct ural policies recommended in the MEFP, and 
sets a precise time frame for their implementation, 
32.      As is standard in all Fund arrangements, a safeguards assessment of the Central Bank 
of Ireland will be completed by the first review of the arrangement. In this regard, the Central Bank will receive a safeguards mission from th e Fund and provide the information required 
to complete the assessment by the first review. As a related matter, and given that financing 
from the IMF will be used to provide direct  budget support, a framework agreement will be 
established between the government and the Central Bank of Ireland on their respective 
responsibilities for servicing fina ncial obligations to the IMF. As  part of these arrangements, 
Fund disbursements will be deposited into the government’s account at the Central Bank. 
33.      We authorise the IMF and the European Commission to publish the Letter of Intent 
and its attachments, and the related staff report. 
  
 
 Table 1. Ireland: Quantitative Performa nce Criteria and Indicative Targets under the Economic Programme for 2010–11 
 
 December 31, 2010 March 31, 2011 June 30, 2011 September 30, 2011 December 31, 2011
  (In billions of Euros) 
      
 Performance 
Criterion Performance 
Criterion Indicative 
Target Indicative Target Indicative Target 
      
1. Cumulative exchequer primary balance 
1/ -15.3 -7.8 -11 -14.3 -14.6 
2. Ceiling on the accumulation of 
new external pay ments arrears on 
external debt contracted or 
guaranteed by the central government 
2/ 0 0 0 0 0 
      
 Indicative Target Indicative Target Indicative 
Target Indicative Target Indicative Target 
      
3. Ceiling on the stock of central government net debt 83.1 91.6 96.5 100 102.2 
      
1/ Measured by the exchequer balance excluding interest payments.  Cumulative from the start of the relevant calendar year.   
2/ Applies on a continuous basis.      
 Table 2. Prior Action and Structural B enchmarks Under the Economic Programme 
for 2010–11  
      
Measure   
   
      
   
Submit the 2011 Budget to Dáil Éireann (MEFP, ¶22). 7 December 2010 Prior Action 
Define the criteria to run stringent 
stress tests scenarios (MEFP ¶12). End-December 2010 Structural Benchmark 
Agree on terms of reference for the due 
diligence of bank assets by 
internationally recognised consulting 
firms (MEFP, ¶12).   End-December 2010 Structural Benchmark 
The Central Bank will direct the 
recapitalisation of the principal banks (AIB, BOI and EBS) to achieve a capital 
ratio of 12 percent core tier 1 (MEFP, 
¶12). End-February 2011 Structural Benchmark 
Submit to Dáil Éireann the draft 
legislation on a special resolution 
regime (MEFP, ¶14).  End-February 2011 Structural Benchmark 
The Central Bank to complete the 
assessment of the bank s’ restructuring 
plans (MEFP, ¶11).  End-March 2011 Structural Benchmark 
Complete the diagnostic evaluation of 
banks’ assets (MEFP, ¶12).  End-March 2011 Structural Benchmark 
Complete stress tests (PCAR 2011) 
(MEFP, ¶12).  End-March 2011 Structural Benchmark 
Complete a full assessment of credit 
unions’ loan portfolios (MEFP, ¶18).  End-April 2011 Structural Benchmark 
The Central Bank will direct the 
recapitalisation of ILP to achieve a 
capital ratio of 12 percent core tier 1 
(MEFP, ¶12).  End-May 2011 Structural Benchmark 
Establish a Budget Advisory Council 
(MEFP, ¶25). End-June 2011 Structural Benchmark 
Introduce a medium-term expenditure 
framework with binding multi-annual 
ceilings on expenditure in each area 
(MEFP, ¶25). End-July 2011 Structural Benchmark 
 
    
 15Fiscal measures included in the programme  
 
2011 
in million EUR  % of GDP 
Revenue measures 1400 
 0.9 
One-off and other revenue measures 700 0.4 
Current expenditure measures 2090 1.3 
Capital expenditure measures 1800 1.1 
TOTAL IMPACT in 2011 5990 3.8 
   
2012 
in million EUR  % of GDP 
New revenue measures 880 
 0.5  
Revenue carryover from previous year 620 0.4 
Current and capital expenditure measures 2100 1.3 
TOTAL ANNUAL IMPACT 3600 2.2 
   
2013 
in million EUR  % of GDP 
New revenue measures 850 
 0.5  
Revenue carryover from previous year 250 0.1 
Current and capital expenditure measures 2000 1.2 
TOTAL ANNUAL IMPACT 3100 1.8 
 16Table. FINANCING NEEDS AND SOURCES - IRELAND, 15/12/2010-2013, bn EUR
29-Nov-10
Dec-2010 2011 2011 2011 2010/11 2012 2013 2010-2013
2011-Q1 Q2 Q3 Q4 Year Year Year Total
A. Gross financing needs public sector 16.1 10.3 4.9 8.9 40.2 29.5 29.2 98.9
Exchequer cash deficit, incl. promissory notes 1/ 7.0 8.6 4.5 3.1 23.2 18.7 17.4 59.4
Long-term debt securities, maturing 0.0 0.0 0.0 4.4 4.4 5.6 6.0 16.0Short-term debt, maturing 7.0 1.4 0.1 1.2 9.6 3.4 3.7 16.7
Treasury Bill 4.7 1.2 0.0 0.1 6.0 2.0 2.0 10.0
Commercial paper 2.3 0.1 0.1 1.1 3.6 1.4 1.7 6.7
Retail debt 2/ 2.1 0.3 0.3 0.3 3.0 1.8 2.1 6.9
B. Debt issuance/ Roll-over 5.4 1.5 1.0 2.0 9.8 12.3 26.8 48.9
Exchequer cash deficit, financing 0.0 0.0 0.0 0.0 0.0 3.7 14.0 17.7
Long-term debt securities , issuance 0.0 0.0 0.0 0.0 0.0 1.1 4.8 5.9
Short-term debt, issuance 2.7 0.5 0.1 1.1 4.5 3.7 3.8 12.0
Treasury Bill 1.6 0.4 0.0 0.0 2.0 2.0 2.0 6.0Commercial paper 1.2 0.1 0.1 1.1 2.5 1.7 1.8 6.1
Retail debt 2.7 0.9 0.9 0.9 5.4 3.8 4.2 13.3
C. Net financing needs public sector (A-B) 10.7 8.8 3.9 7.0 30.4 17.2 2.5 50.0
Budget deficit and promissory notes 7.0 8.6 4.5 3.1 23.2 15.0 3.5 41.7Long-term debt 0.0 0.0 0.0 4.4 4.4 4.5 1.2 10.0
Short-term debt 4.3 0.8 0.0 0.1 5.1 -0.3 -0.2 4.6
Treasury Bill 3.2 0.8 0.0 0.1 4.0 0.0 0.0 4.0Commercial paper 1.1 0.0 0.0 0.0 1.1 -0.3 -0.2 0.6
Retail debt -0.6 -0.6 -0.6 -0.6 -2.4 -2.0 -2.1 -6.4
D. Bank recapitalization 13.8 7.5 3.7 0.0 25.0 5.0 5.0 35.0
Direct capital injection 3/ 7.0 0.0 0.0 0.0 7.0 0.0 0.0 7.0
Further capital provisions 6.8 7.5 3.7 0.0 18.0 5.0 5.0 28.0
TOTAL - FINANCING NEEDS (C+D) 24.5 16.3 7.6 7.0 55.4 22.2 7.5 85.0FINANCING and PHASING
Use of Ireland's financial buffers 6.9 3.8 1.9 0.0 12.5 2.5 2.5 17.5
Treasury cash buffer 6.9 1.9 0.0 0.0 8.8 0.0 0.0 8.8
National Pension Reserve Fund (NPRF) 0.0 1.9 1.9 0.0 3.7 2.5 2.5 8.7
EU-IMF loan disbursement 4/ 5/ 17.6 12.6 5.8 7.0 42.9 19.7 5.0 67.5
EU, disbursement 11.7 8.4 3.9 4.6 28.6 13.1 3.3 45.0
IMF 5.9 4.2 1.9 2.3 14.3 6.6 1.6 22.5
TOTAL - FINANCING 24.5 16.3 7.6 7.0 55.4 22.2 7.5 85.0Notes:
1/ Includes interest payments. Deficit projections are based on more prudent assumptions than those underlying the macroeconomi c projections.
2/ Includes retail debt (primarily post office accounts) and maturing debt of Housing Finance Agency (with direct call on exche quer if not funded).
3/ Capital injection in 2010-Q4 to meet 12% Core Tier 1 ratio for AIB, BoI, ILP and EBS. 
4/ EU-IMF share equally split among IMF (1/3), EFSM (1/3) and EFSF/bilaterals (1/3).  
5/ First disbursement will be in Q4 2010
 17 
Ireland 
Memorandum of Understanding  
on 
 
SPECIFIC ECONOMIC PO LICY CONDITIONALITY 
2 December, 2010 
 
The quarterly disbursement of financial assistance from the European Financial Stabilisation Mechanism (EFSM), the European Financial Stab ility Facility (EFSF) and bilateral loans by 
UK, Sweden and Denmark will be subject to quarterly reviews of conditionality for the 
duration of the programme. Release of the instalments will be based on observance of 
quantitative performance criteria, respect for EU Council Decisions and Recommendations in 
the context of the excessive defi cit procedure, and a positive evaluation of progress made with 
respect to policy criteria in the Memorandum of Economic and Financial Policies (MEFP) and 
in this Memorandum of Understanding on speci fic economic policy conditionality (MoU), 
which specifies the detailed criteria that will be assessed for the successive reviews up to the 
end of 2013. If targets are (expected to be ) missed, additional action will be taken.  
 The authorities commit to consult with the European Commission, the ECB and the IMF on the adoption of policies that are not consistent  with this Memorandum. They will also provide 
the European Commission, the ECB and the IMF with all information requested that is 
available to monitor progress during programme  implementation and to track the economic 
and financial situation. Prior to the release of the instalments, the authorities shall provide a 
compliance report on the fulfilm ent of the conditionality. 
  The release of the first instalments will be conditional on the successful adoption of Budget 
2011 as described in the MEFP and this MoU.   
1. Actions for the first review (actions to be completed by end Q1-2011) 
 
i. Fiscal consolidation 
 
Government submits the draft budget for 2011 for Dáil approval. The budget provides 
information and prudent projections on the enti re general government sector and targets a 
further reduction of the general government deficit in line with the MEFP. It includes a 
detailed presentation of fiscal consolidation adjustments for 2011 of €6 billion.  The budget includes the following m easures (in exceptional circum stances, measures yielding 
comparable savings could be considered in close consultation with European Commission, 
IMF and ECB staffs);   - Revenue measures to raise at least €1,400m in 2011 and an extra €620m in a full year will 
be introduced to the Houses of the Oireachtas, including: 
- A lowering of personal income tax bands a nd credits or equivalent measures to 
yield €945m in 2011 and an extra €300m in a full year. 
 18- A reduction in pension tax re lief and pension related de ductions to yield €155m in 
2011, and an extra €105m in a full year. 
- A reduction in general tax expenditures  to yield €220m in 2011, and an extra 
€185m in a full year. 
- Excise and miscellaneous tax measures to raise €80m in 2011 and a further €30m 
in a full year will be introduced.  
- The government will outline methods to raise at least €700m in one-off and other 
measures in 2011.  
  
- A reduction of current expenditure in 2011 of at least €2,090m will be implemented 
including; 
- Social Protection expenditure reductions.  
- Reduction of public service employment numbers in 2011.  
- A reduction of existing public service pens ions on a progressive basis averaging 
over 4% will be introduced.  
- Other expenditure savings of €1,030m in cluding savings on goods and services. 
 
- A reduction of at least €1,800m in public capit al expenditure against existing plans for 
2011 will be introduced. 
 
Government will rigorously implement the b udget for 2011 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
procedure. Progress is assessed against the (cum ulative) quarterly primary deficit ceilings in 
the Memorandum of Economic and Financial Polices (MEFP) including the Technical 
Memorandum of Understanding (TMU).  The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved.  
ii. Financial sector reforms 
 
Recapitalisation measures 
 
- The measures proposed for the recapitalisation of Irish banks in the government statement 
of 30 September 2010 will be implemented, taki ng into account any changes in strategy 
for the future of the banking sector agreed under the programme. 
 
- Further deleveraging of the banks will be achieved by the extension of the NAMA 
programme to include approximately €16bn of  land and development loans in AIB and 
Bank of Ireland, which had previously been excluded as they were below a value 
 19threshold of €20m. NAMA will categorise s ub-€20m AIB and BOI land and development 
and associated loans (roughly estimated to number 10,000) by reference to asset type and 
region. NAMA will then apply different discounts to each category based on NAMA’s loan valuation experience up to th e point of valuation. On this basis it is expected that all 
loans will be transferred by end-March 2011. NAMA will issue bonds in return for the assets transferred. NAMA woul d build on the existi ng outsourcing arrang ements with the 
banks for the management of these smaller lo ans and performance will be incentivised as 
appropriate. The NAMA legislation will be amended to underpin the valuation and 
acquisition of these assets on a portfolio basis.  The additional capital  requirement will be 
met by the programme and is included in th e figure below. These measures will be 
notified to the European Commission in accordance with EU competition rules.  
 
- Prudential Capital Assessment Review (PCAR)  minimum capital requirement for the Irish 
banks (AIB, BOI, EBS and ILP) will  be set at 10.5% core tier 1; 
 
- In addition the Irish authorities will ensu re that AIB, BOI and EBS are initially 
recapitalised to a level of 12% core tier 1 capi tal, which will take account of haircuts on 
the additional loans to be  transferred to NAMA and w ill fund early deleveraging by 
making available EUR 10 billion in the system; the recapitalisation will take the form of 
equity shares (or equivalent instruments for EBS); 
 
- The PCAR exercise will be enhanced to provide a comp rehensive evaluation of the 
underlying assets of the banks, taking in to account future expected losses.  
 
- The PCAR for 2011 will be completed based on  comprehensive Terms of Reference for 
its design and implementation, which will have been previously agreed between the Central Bank, the European Commission, IM F and ECB staff. The methodology used will 
be published in detail. The Commission, IMF an d ECB shall be involved in the validation 
of the PCAR process. In particular, key data  and information that relates to the PCAR 
exercise will be available to th e Commission, IMF and ECB upon request. 
 
Deleveraging measures 
 
- The Central Bank will complete a Prudential Li quidity Assessment Plan (PLAR) for 2011, 
outlining measures to be implemented with a view to steadily deleveraging the banking 
system and reducing the banks' reliance on  short term funding by the end of the 
programme period. Ambitious target loan to  deposit ratios, to be achieved by end 2013, 
will be established for each bank by the Irish authorities in consultation with the ECB, EC and the IMF by end Dec 2010. These targets will be designed to ensure that convergence 
to Basel III standards can be readily met by the relevant dates. To this end, the PLAR will 
establish target funding ratios for 2013 for each of the banks, identify non core assets and set an adjustment path to these targets ba sed on specified non public  annual benchmarks. 
Banks will be informed of necessary actions  to be taken so as to comply with the 
respective funding targets and ad justment paths. The design and implementation of the 
PLAR will be agreed with the European Co mmission, the ECB and the IMF. Compliance 
with the PLAR benchmarks wi ll be monitored and enforced  by the Central Bank taking 
account of prevailing market conditions. The PLAR will be updated on an annual basis.  
 20Reorganisation of banking sector  
 
- The strategy for the future stru cture, functioning and viabilit y of Irish credit institutions 
will be developed in detail and agreed with  the European Commission, the ECB and the 
IMF. Within the context of a comprehens ive reorganisation and downsizing of the 
banking sector the strategy will identify the appr opriate path to ensure that the banking 
system will operate without the need of furt her State support. The Irish authorities are 
committed to divest the participations in the banks acquired during the crisis within the shortest timeframe possible which is compatible with financial stability and public finance considerations. Building on rest ructuring undertaken to date , further restructuring and 
viability plans for the institutions concer ned will be submitted in accordance with EU 
competition rules; these plans will also be made available to the IMF and ECB. 
Commitments undertaken by the Irish authorities in the c ontext of EU competition 
decisions will be maintained.  
 
- In the context of the above strategy, a specifi c plan for the resolution of Anglo Irish Bank 
and Irish Nationwide Building Society will be established and submitted to the European Commission in accordance with EU competition rules. Any related legal procedures will 
be set in motion under a precise timetable. This  plan will seek to minimise capital losses 
arising from the working out of these non-viab le credit institutions. The Government will 
ensure that these credit institutions a dhere to the requisite capital ratios. 
 
- Legislation on improved procedures for early in tervention in distress ed banks and special 
bank resolution regime (SRR) will be introduced. The SRR should include a robust set of powers and tools to ensure the competent aut horities can promptly and effectively resolve 
distressed banks e.g. when they pose a risk to  financial stability. Th e legislation will be 
consistent with the EU Treaty rules and will be  consistent with similar initiatives ongoing 
at EU level. 
 
- Central Bank staffing in relation to the PCAR  and PLAR exercises will be reviewed and 
augmented as necessary to guarantee that bo th exercises can be conducted on a timely and 
efficient basis.  
 
Burden sharing by holders of subordinated debt   
 
- Consistent with EU State aid rules, burde n sharing will be achie ved with holders of 
subordinated debt in relevant credit instit utions over the period of  the programme. This 
will be based on the quantum of capital and othe r financial assistance the State commits to 
support specific credit institutions and the fina ncial viability of those institutions in the 
absence of such  support. Resolution and re structuring legislation which will address the 
issue of burden sharing by subordinated bondhold ers will be submitted to the Oireachtas 
by end-2010. Where it is appropriate in line w ith the above criteria, the process of 
implementing liability management exercises similar to that which is currently being 
undertaken in relation to hol ders of subordinated debt in Anglo Irish Bank will be 
commenced by end-Q1 2011. 
 21iii. Structural reforms 
 
To facilitate adjustmen t in the labour market 
The government will introduce legislation to refo rm the minimum wage in such a way as to 
foster job creation notably fo r categories at higher risk of unemployment and prevent 
distortions of wage conditions across sectors associated with  the presence of sectoral 
minimum wages in addition to the national mi nimum wage. Measures will be as follows:  
 - Reduce by €1.00 per hour the nominal level of the current national minimum wage. 
- Enlarge the scope of the "inability to pay clause" permitting firms to invoke this clause 
more than once; 
 
These measures should come into effect by May 2011.  An independent review of the Framework REA and ERO arrangements will be initiated by 
the end of Q1 2011. Terms of Reference and foll ow up actions will be agreed with European 
Commission Services. 
 
To reduce the risk of long-term unemployment 
The government will reform the unemployment bene fit system in such a way as to provide 
incentives for an early exit from unemployment.  This reform of unemployment and social 
assistance benefits will be part  of overall reforms in the welfare system designed to reach 
budgetary savings of €750m in 2011. 
 Legislative measures will be introduced  with a view to: 
Taking steps to tackle unemployment and poverty traps including through reducing 
replacement rates for individuals receiving more than one type of benefit (including housing 
allowance). 
The government reforming the system of activation policies in such a way as to adapt it to the 
reform in benefits and make it more effective. Legislative and other measures will be introduced with a view to: 
- improving the efficiency of the administration of unemployment benefits, social assistance 
and active labour market policie s, by exploiting synergies and reducing the overlapping of 
competencies across different departments; 
- enhancing conditionality on work and training availability;  
- strengthening activati on measures via:  
i. the introduction of instruments to better id entify of job seekers' needs ("profiling") 
and increased engagement;  
ii. a more effective monitoring of jobseekers' activities with regular evidence-based 
reports;  
 22iii. the application of sanction mechanisms fo r beneficiaries not complying with job-
search conditionality and recommendations for participation in labour market programmes set in such a way as to impl y an effective loss of income without 
being perceived as excessively penalising so that it could credibly be used 
whenever lack of compliance is ascertained.  
 
At each subsequent review of the programme, the government will submit reports containing 
an assessment (including by means of quantit ative indicators) of the management of 
activation policies and on the outcome of job seekers' search activities and participation in labour market programmes. 
 Legislative measures should come into effect by May 2011.  An in-depth review of the personal debt regime will be published shortly. Work will 
commence on reform of legislation which will balance the interests of both creditors and 
debtors. 
2. Actions for the second revie w (actions to be completed by end Q2-2011) 
i. Fiscal consolidation 
 
Government will rigorously implement the b udget for 2011 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
procedure. Progress will be assessed against the (cumulative) quarterly primary deficit 
ceilings in the Memorandum of Economic a nd Financial Polices (MEFP) including the 
Technical Memorandum of Understanding (TMU).  The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved.  The government will submit a timetable for implementing the recommendations of the 
Memorandum. Upon consideration by the Eu ropean Commission, IMF and ECB staffs the 
measures in this timetable shall become the performance benchmarks for future reviews. 
  
ii. Financial sector reforms 
 
- The results of the PCAR for 2011 will be assessed by the aut horities, together with the 
European Commission, the ECB and the IMF. The results will be published in detail and 
on a bank-by-bank basis. 
 
- Depending on the results of the PCAR 2011, th e Government will ensure that the banks 
are recapitalised in the form of equity, if need ed, so as to ensure that the minimum capital 
requirement of 10.5% will be maintained. 
 23- Introduce legislation for the enhancement of financial regulation, expanding the 
supervisory and enforcement powers of the Central Bank.  
 
- The Irish authorities will ensure that ILP is recapitalised to a level of 12% core tier 1 
capital. 
 
- Progress in implementation of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
 
iii. Structural reforms 
 
To enhance long-term fiscal sustainability 
- The Authorities undertake to introduce legislat ion to increase the st ate pension age. Under 
the Government’s National Pension Framewor k the age at which people will qualify for 
the State Pension will be increased to 66 years in 2014, 67 in 2021 and 68 in 2028. 
 
iv. Structural fiscal reforms 
 
To reinforce a credible budgetary strategy 
- The government will continue to ensure the re liability and the regular availability of 
budgetary data for both the whole of the general government sector and its breakdown into government layers. Specifically, reporti ng will comply with the provisions included 
in annex 1 of the MoU. 
- Under the period of this financial assi stance programme, any additional unplanned 
revenues must be allocated to debt reduction. 
- In accordance with the proposal set out in  the National Recovery Plan 2011-2014, the 
government will establish a budgetary adviso ry council to provide an independent 
assessment of the Government’s bud getary position and forecasts.  
- Government extends the voluntary 15 day rule relating to prom pt payments to the health 
service executive, local aut horities and state agencies. 
 
3. Actions for the third review (actions to be completed by end Q3-2011) 
 
i. Fiscal consolidation 
 
Government will rigorously implement the b udget for 2011 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
procedure. Progress is assessed against the (cum ulative) quarterly primary deficit ceilings in 
the Memorandum of Economic and Financial Polices (MEFP) including the Technical 
Memorandum of Understanding (TMU).  Government will consider an appropriate adju stment, including to the overall public service 
wage bill, to compensate for potential shortf alls in the projected savings arising from 
administrative efficiencies and public service numbers reductions. 
 24The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved.  
ii. Financial sector reforms 
- Interim review of progress under PLAR 2011 a nd any related actions will be assessed, 
together with the European Commission, the ECB and the IMF.  
- Progress in implementing the strategy for the reorganisation of Irish credit institutions will 
be assessed by the authoritie s, together with the Europ ean Commission, the ECB and the 
IMF. 
- Review progress against PCAR requirements. 
 
iii. Structural reforms 
 
To increase growth in th e domestic services sector 
Government will introduce legislative changes to remove restrictions to trade and competition 
in sheltered sectors including:  
-  the legal profession, establishing an inde pendent regulator for the profession and 
implementing the recommendations of the Legal Costs Working Group and outstanding 
Competition Authority recommendations to reduce legal costs. 
-  medical services, eliminating restricti ons on the number of GP s qualifying and removing 
restrictions on GPs wishing to treat public patients as well as  restrictions on advertising. 
-  the pharmacy profession, ensuring that the r ecent elimination of the 50% mark-up paid for 
medicines under the State's Drugs Payments Scheme is enforced. 
To enhance competition in open markets 
- Government should introduce reforms to legi slation to (1) empower judges to impose 
fines and other sanctions in competition ca ses in order to generate more credible 
deterrence and (2) require the competition author ities to list restrict ions in competition law 
which exclude certain sectors from its scope and to identify processes to address those 
exclusions. 
To encourage growth in the retail sector 
- The government will conduct a study on the ec onomic impact of e liminating the cap on 
the size of retail premises with a view to enhancing competition and lowering prices for consumers and discuss implementation of its policy implications with the Commission 
services.  
iv. Structural fiscal reforms 
 
To put the public service pension system on a more sustainable basis 
- Pension entitlements for new entrants to the pu blic service will be reformed with effect 
from 2011. This will include a review of accelerated retireme nt for certain categories of 
public servants and an indexation of pensions to consumer prices. Pensions will be based 
 25on career average earnings. New public service entran ts will also see a 10% pay reduction. 
New entrants' retirement age will also be li nked to the state pension retirement age. 
 
To ensure a more credible fiscal framework 
- Assessment of work in progress related to the fiscal governance requirements considered 
in the previous quarters. 
 
To facilitate better government at a local level 
- Government will ensure that effective measures  are in place to cap the contribution of the 
local government sector to general government  borrowing at an acceptable level. The 
mechanisms in place to underpin this position will be kept under close review, in consultation with the Commission services. The review will also consider how to provide data on the financial position including assets and liabilities of the sector on a timelier basis.  
 
4. Actions for the fourth review (actions to be completed by end Q4-2011) 
i. Fiscal consolidation 
 
Government will rigorously implement the b udget for 2011 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
procedure. Progress is assessed against the (cum ulative) quarterly primary deficit ceilings in 
the Memorandum of Economic and Financial Polices (MEFP) including the Technical 
Memorandum of Understanding (TMU).  The government will provide a draft budget for 2012 aiming to further reduce the general government deficit in line with  the National Recovery Plan and the programme and including 
the detailed presentation of consolida tion measures amounting to at least €3.6bn.  
 
- Revenue measures to yield €1,500m
1 in a full year will be introduced, including: 
- A lowering of personal income tax bands and credits. 
- A reduction in private pension tax reliefs. 
- A reduction in general tax expenditures.  
- A property tax. 
- A reform of capital gains tax and acquisitions tax. 
- An increase in the carbon tax. 
- The budget will provide for a reduction of expenditure in 2012 of €2,100m including: 
- Social expenditure reductions.  
- Reduction of public service numbers. and public service pension adjustments. 
- Other programme expenditure, and re ductions in capital expenditure. 
                                                 
1 Inclusive of 2011 carryover 
 26The Authorities will introduce measures to ensure that the deficit reduction targets as set out 
in the National Recovery Plan are achieved.  The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved.  
ii. Financial sector reforms 
 
- Progress in implementing of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
 
iii. Structural reforms 
 
To assist in financing need and to increase competition 
- Building on the forthcoming report of the Revi ew Group on State Assets & Liabilities the 
government will undertake an independent asse ssment of the electricity and gas sectors. 
State authorities will consult with the Co mmission Services on the results of this 
assessment with a view to se tting appropriate targets. 
 
In advance of the introduction of water charges 
- The government will have undertaken an independent assessment of transfer of 
responsibility for water services provision fr om local authorities to  a water utility, and 
prepare proposals for implementation, as appr opriate with a view to start charging in 
2012/2013. 
 
iv. Structural fiscal reforms 
 
To reinforce the credibility of the budgetary process 
- Assessment of work in progress related to the fiscal governance requirements considered 
in the previous quarters.  
 
- The Government will introduce a Fiscal Respon sibility Law which will include provision 
for a medium-term expenditure framewor k with binding multi-annual ceilings on 
expenditure in each area by Q4 2011. This wi ll take into account any revised economic 
governance reforms at EU level and will bui ld on reforms already in place.   
 
5. Actions for the fifth review (actions to be completed by end Q1-2012) 
 
i. Fiscal consolidation 
 
Government will rigorously implement the b udget for 2012 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
 27procedure. Progress is assessed against the (cum ulative) quarterly primary deficit ceilings in 
the Memorandum of Economic and Financial Polices (MEFP) including the Technical 
Memorandum of Understanding (TMU). Finance Bill 2012 will contain necessary provisions 
to bring into effect the already si gnalled VAT increases in 2013 and 2014. 
 The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 
ii. Financial sector reforms 
 
- PCAR for 2012 will be completed. The methodol ogy used will be published in detail. The 
Government will ensure that the banks a dhere to the requisite capital ratios. 
 
- PLAR 2012 will be completed and any related ac tions will be assessed, together with the 
European Commission, the ECB and the IMF.  
 
- Progress in implementing of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF 
 
- Legislation to reform the personal debt regi me to be presented to the Houses of the 
Oireachtas. 
iii. Structural reforms 
 
To boost the integrity of the fiscal framework 
- Assessment of work in progress related to the fiscal governance requirements considered 
in the previous quarters.  
 
6. Actions for the sixth review (actions to be completed by end Q2-2012) 
 
 i. Fiscal Consolidation 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 28ii. Financial sector reforms 
- The results of the PCAR for 2012 will be as sessed, together with European Commission, 
the ECB and the IMF. The results will then be published in detail and on a bank-by-bank 
basis. 
 
- Depending on the results of th e PCAR 2012, the Government  will ensure that the 
minimum capital requirement of 10.5% will be maintained. 
 
- Progress in implementation of the strategy for the restructuring of the Irish credit 
institutions banking system will be assessed by th e authorities, together with the European 
Commission, the ECB and the IMF. 
 
iii. Structural fiscal reforms 
 
To further enhance the credibil ity of the fiscal framework 
- Assessment of work in progress related to the fiscal governance requirements considered 
in the previous quarters.   
 
7. Actions for the seventh review (actio ns to be completed by end Q3-
2012) 
 
i. Fiscal Consolidation 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 
ii. Financial sector reforms 
- Interim review of progress under PLAR 2011 a nd any related actions will be assessed, 
together with the European Commission, the ECB and the IMF.  
- Progress in implementing of the strategy for re structuring of the Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
- Review progress against PCAR requirements. 
 
8. Actions for the eighth review (actions to be completed by end Q4-2012) 
 
i. Fiscal consolidation 
The government will provide a draft budget for 2013 aiming at a further reduction of the 
general government deficit in line with the 4- year plan and the prog ramme and including the 
detailed presentation of consolidation measures amounting to at least €3,100m. 
 29- Revenue measures to raise at least €1,100m2 in the full year will be introduced, including: 
- A lowering of personal income tax bands and credits.  
- A reduction in private pension tax relief. 
- A reduction in general tax expenditures.  
- An increase in property tax.  
- The budget will provide for a reduction in expe nditure in 2013 of no less than €2,000m, 
including: 
- Social expenditure reductions.  
- Reduction of public service numbers and public service pension adjustments.  
- Other programme expenditure, and re ductions in capital expenditure. 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 
ii. Financial sector reforms 
 
- Progress in implementation of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
 
- Implementing of the plan for restructuring a nd strengthening the ba lance sheets of the 
credit union sector will be completed. 
 
9. Actions for the ninth review (actions to be completed by end Q1-2013) 
 
i. Fiscal consolidation 
 
Government will rigorously implement the b udget for 2013 and the fiscal consolidation 
measures announced afterwards, consistent with  the requirements of the excessive deficit 
procedure. Progress is assessed against the (cum ulative) quarterly primary deficit ceilings in 
the Memorandum of Economic and Financial Polices (MEFP) including the Technical 
Memorandum of Understanding (TMU). 
 The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
                                                
 
2 Inclusive of carryover from 2012 
 30ii. Financial sector reforms 
 
- PCAR for 2013 will be completed. The method ology used will be published in detail. 
 
- PLAR 2012 will be completed and any related ac tions will be assessed, together with the 
European Commission, the ECB and the IMF.  
 
- Progress in implementing of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
 
iii. Structural fiscal reforms 
 
- Assessment of work in progress related to the fiscal reforms considered in the previous 
quarters. 
- The nominal value of the State pension should not rise over the period of the programme.  
 
10. Actions for the tenth review (actions to be completed by end Q2-2013) 
 
i. Fiscal Consolidation 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
ii. Financial sector reforms 
- The results of the PCAR for 2013 will be as sessed, together the European Commission, 
the ECB and the IMF. The results will then be  published in detail and on a bank-by-bank 
basis. 
- Depending on the results of th e PCAR 2013, the Government  will ensure that the 
minimum capital requirement of 10.5% will be maintained. 
- The PLAR for 2013 will be completed.  
- Progress in implementation of the strategy for the restructuring the banking system will be 
assessed by the authorities, together with the European  Commission, the ECB and the 
IMF. 
11. Actions for the eleventh review (actio ns to be completed by end Q3-
2013) 
i. Fiscal Consolidation 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 31ii. Financial sector reforms 
 
- Interim review of progress under PLAR 2011 an d any related actions will be assessed, 
together with the European Commission, the ECB and the IMF.  
- Progress in implementing of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
- Review progress against PCAR requirements 
12. Actions for the twelfth review (actio ns to be completed by end Q4-
2013) 
 
i. Fiscal Consolidation 
The Department of Finance will continue to  ensure tight superv ision of expenditure 
commitments by the line departments, and effec tive tax collection, to make certain that the 
primary deficit target in cash (see Table 1 of MEFP) and the general government nominal 
budget deficit on ESA95 basis as set out in the EU Council Recommendation on excessive 
deficit procedures are achieved. 
 
ii. Financial sector reforms 
- Progress in implementing of the strategy for th e reorganisation of Irish credit institutions 
will be assessed by the authoriti es, together with the European Commission, the ECB and 
the IMF. 
 Annex 1. Provision of data  
 
During the programme, the following indicators a nd reports shall be made available to the 
European Commission, the ECB and the IMF sta ffs by the authorities on a regular basis.  
 
To be provided by the Department of Finance 
Monthly data on adherence to budget targets (Exchequer statement, 
details on Exchequer revenues and expenditure with information on 
Social Insurance Fund to follo w as soon as practicable). Monthly, 10 days after the end 
of each month 
Updated monthly report on the central government's budget execution 
and prospects for the remainder of the year. Monthly, 30 days after the end 
of each month 
Quarterly data on main revenue and expenditure items of local 
government. Quarterly, 90 days after the end 
of each quarter 
Updated annual plans for the general government balance showing 
transition from the Exchequer balance to the general government balance (using presentation in Table 1 and Table 2A of the EDP 
notification). Monthly, 30 days after the end 
of each month  
Quarterly data on the public service wage bill, number of employees 
and average wage (using the presentation of the Pay and Pension Bill 
with further details on pay and pension costs of local authorities).  Quarterly, 30 days after the end 
of each quarter 
Information on the main Government  spending and receipt items W eekly on Friday, reporting on 
the previous Thursday 
Quarterly data on general government accounts, and general 
government debt as per the relevant EU regulations on statistics. Quarterly accrual data, 90 days 
after the end of each quarter
  
Updated annual plans of the general government balance and its 
breakdown into revenue and expenditure components for the current year and the following four years, using presentation in the stability 
programme's standard table on general government budgetary 
prospects.  Together with EDP notification 
To be provided by the NTMA  
Weekly information on the Government's cash position with indication 
of sources as well of number of days covered  Weekly on Friday, reporting on 
the previous Thursday 
Data on below-the-line financing for the general government. Monthly, no later than 15 days 
after the end of each month 
Data on public debt, new guarantees and other instruments issued by 
the general government to public enterprises, banks and the private 
sector. Monthly, 30 days after the end 
of each month 
Data on short-, medium- and long-term debt falling due (all 
instruments) over the next 36 months for the general government 
(interest and amortisation) and for central government and local 
authorities Monthly, 30 days after the end 
of each month 
Data on short-, medium- and long-term debt falling due (all 
instruments) over the next 36 mont hs for State-guaranteed enterprises 
(interest and amortisation) (or Dept of Finance) Quarterly, 30 days after the end 
of each quarter 
Updated estimates of financial sources (bonds issuance, other 
financing sources) for the banking and government sectors in the next 12 months  Monthly, 30 days after the end 
of each month 
 33To be provided by the Central Bank 
Assets and liabilities of the Central Bank Weekly, next working day 
Assets and liabilities of the Irish banking system - aggregate monetary 
balance sheet of credit institutions  Monthly, 30 days after the end 
of each month  
Short-, medium- and long-term debt falling due (by type of instrument) 
over the next 36 months for domestic banks of systemic importance (interest and amortisation). Monthly, 30 days after the end 
of each month 
Weekly individual operational balance sheets of commercial banks (of 
systemic importance), including detailed information on deposits (by maturity and type of depositor) and loans provided to the public and 
the private sector (hou seholds and corporates) Weekly, next working day 
Public debt and new guarantees issued by the general government to 
banks. Monthly, 30 days after the end 
of each month 
Financial stability indicators (IMF core set: deposits, non-performing 
loans, capital adequ acy ratios)) for systemic domestic banks Monthly, 30 days after the end 
of each month 
Estimates of domestic banks' capital needs in the next 12 months Monthly, 30 days after the end 
of each month 
Estimates of funding sources for the banking sector for the next 12 
months Monthly, 30 days after the end 
of each month 
 TECHNICAL MEMORANDUM OF UNDERSTANDING (TMU) 
 
December 1, 2010 
 
1.      This Technical Memorandum of Understand ing (TMU) sets out the understandings 
regarding the definitions of the indicators su bject to performance cr iteria and indicative 
targets under the arrangement supported by th e Extended Fund Facility (EFF). These 
performance criteria and indi cative targets are reported in  Table [1] attached to the 
Memorandum of Economic and Financial Policie s (MEFP). This TMU also describes the 
methods to be used in assessing the pr ogramme performance and the information 
requirements to ensure adequate monitoring of the targets. 
2.      For programme purposes, all foreign currency-re lated assets, liabilities, and flows will 
be evaluated at “programme exchange rates”, with the exception of the items affecting the 
government fiscal balances, which will be m easured at current exchange rates. The 
programme exchange rates are those that prevailed on [November 24], as shown on the 
European Central bank web-page, in partic ular, €1 = [1.3339] U.S. dollar and €1 = [0.86547] 
SDR. 
I.   Q UANTITATIVE PERFORMANCE CRITERIA AND INDICATIVE TARGETS  
A.   Floor on the Exchequer Primary Balance 
3.      The exchequer balance is the traditio nal domestic budgetary aggregate which 
measures the net surplus or net deficit posit ion of the Exchequer Account. The Exchequer 
Account is the single bank account of the Centra l Fund and is held at the Central Bank of 
Ireland. The annual audited accounts of the Ex chequer Account produced by the Department 
of Finance are known as the Finance Acc ounts. An unaudited summary known as the 
Exchequer Statement is produced at the end of each month. Under the Irish Constitution, all 
Government receipts are paid in to the Ce ntral Fund and all Government expenditure is 
funded from it, unless provided otherwise by law3. The Exchequer balance is the difference 
between total receipts into, a nd total expenditure out of, the Exchequer Account. It measures 
the sum of the current and capital  balances. The current balance is  defined as current receipts 
(tax and non-tax revenue) minus current e xpenditure (voted expe nditure and non-voted 
expenditure charged directly on the Central Fund, including the Si nking Fund). The capital 
balance is defined as capital receipts (Sinki ng Fund and other capital receipts) minus capital 
expenditure (voted and non-voted  expenditure). The Sinking Fund provision is a transfer from 
the current account to the capit al account to reduce national debt and has no effect on the 
overall exchequer balance.  
                                                 
3 Receipts of the Central Fund comprise Exchequer tax revenues, non-tax revenues, receipts from the European 
Union and other capital receipts. Charges on the Ce ntral Fund include the ex penditure of Government 
departments and offices, payments related to the servicing of the national debt, payments to the European Union Budget, the salaries, pensions and a llowances of the President, judiciar y, and Comptroller & Auditor General 
and the running costs of the Houses of the Oireachtas (Parliament). Extra-budgetary funds (including the 
National Pensions Reserve Fund), the Social Insurance Fund, semi-state bodies and local governments are not part of the Exchequer system. 
 
 354.      The performance criteria are set on the ex chequer primary balance (the exchequer 
balance excluding net debt interest paymen ts in the service of the National Debt) 4.  
5.      For the purposes of the programme, the floor on the exchequer primary balance 
(quantitative performance criterion) will be  adjusted downward by payments for bank 
restructuring carried out under the programme ’s banking sector support and restructuring 
strategy. Such payments may includ e, inter alia, loans to banks,  investments in their equity 
(requited recapitalisation), unrequi ted recapitalisation, and purchases of troubled assets, which 
are carried out in line with programme objectives. Any other financial operation by 
Government to support banks, including the issuan ce of guarantees or provision of liquidity, 
will be reported to IMF staff.  
6.      The floor on the exchequer primary balance (quantitative performa nce criterion) in 
each year will be measured cumulatively from the start of that calendar year.  
Cumulative Exchequer primary balance  (In billions of Euros) 
From January 1, 2010: 
   End-December 2010 (performance criterion)  
-15.3 
From January 1, 2011:    End-March 2011 (performance criterion)  
-7.8 
   End-June 2011 (indicative target) -11.0 
   End-September 2011 (indicative target) -14.3 
   End-December 2011 (indicative target) -14.6 
 
7.      The performance criterion on the excheque r primary balance (f loor) for end-March 
2011 and thereafter, will be ad justed upward (downward) for the full amount of any over-
performance (under-performance) in Exchequer tax revenues, pay-rela ted social insurance 
contributions (PRSI), health levy and national training fund contributions against the current 
projection which is listed below5: 
Cumulative Exchequer tax re venue & other receipts (as 
outlined in 7. above )  (In billions of Euros) 
End-March 2011 (projection) 9.7 
End-June 2011 (projection) 19.4 
End-September 2011 (projection) 29.7 
End-December 2011 (projection) 41.9 
 
8.      Any policy changes, including in tax admini stration and enforcement, which impact 
the above revenue projection will lead to a reassessment of the adjustor in the context of 
program reviews. 
                                                 
4 Net debt interest payments are as per the end-month Exchequer Statements.  
5 Exchequer tax receipts are comprised of income tax, value a dded tax (VAT), corporation tax,  excise duties, stamp duties, 
capital gains tax, capital acquisi tions tax and customs duties.  
 36B.   Ceiling on the Stock of Central Government Net Debt 
9.      The stock of central government net debt , for the purposes of the programme, is 
defined as the National Debt, less liquid a ssets of the National Pensions Reserve Fund 
(NPRF). The National Debt is defined as the to tal outstanding amount of  principal borrowed 
by central government and not repaid to date, less liquid assets available for redemption of 
those liabilities at the same da te. These liquid assets comprise the Exchequer cash balances 
(including cash in the Capita l Services Redemption Account), Exchequer deposits with 
commercial banks and other institutions, investme nts in investment grade sovereign bills. For 
the purposes of the programme, NPRF liquid assets , include the asset classes listed above, and 
also all marketable securities such as incl ude equities, investment  grade government bonds 
and other listed investments. NPRF shares in  domestic Irish banks are excluded from the 
definition of liquid assets. 
10.      For the purposes of the programme, the cei ling on the central government net debt 
(indicative target) will be adjusted upwa rd by debt arising from payments for bank 
restructuring carried out under the programme ’s banking sector support and restructuring 
strategy. These payments may include, inter alia, loans to banks, investments in their equity 
(requited recapitalisation); unreq uited recapitalisation; and pu rchases of troubled assets, 
which are carried out in line with programm e objectives. The programme exchange rates will 
apply to all non-euro denominated debt.  
11.      The ceiling on the outstanding st ock of central government net debt will be adjusted 
upward (downward) by the amount of any final upward (downward) revision to the stock of 
end-October 2010 central government net debt.  
Central government net debt  (In billions of Euros) 
Outstanding stock:  
End-October 2010 (provisional)  78.6 
End-December 2010 (indicative target)  83.1 
End-March 2011 (indicative target) 91.6 
End-June 2011 (indicative target) 96.5 
End-September 2011 (indicative target) 100.0 
End-December 2011 (indicative target) 102.2 
 
C.   Non-accumulation of External Pa yments Arrears by Central Government 
12.      The central government will accumulate no external payment arrears during the 
programme period. For the purposes of this perf ormance criterion, an exte rnal payment arrear 
will be defined as a payment by the central government on its contracted or guaranteed 
external debt that has not been made with in five business days after falling due. The 
performance criterion will ap ply on a continuous basis. 
 3713.      The stock of external payments arrears of  the central government will be calculated 
based on the schedule of external payments obligations reported by the National Treasury 
Management Agency. This performance criterion does not cover arrears w ith regard to trade 
credits. 
II.   R EPORTING REQUIREMENTS  
14.      Performance criteria under the programme will be monitored using data supplied to 
the IMF. The Irish authorities will transmit prom ptly any data revisions in a timely manner.  
• The Department of Finance will report th e Exchequer balance to the IMF staff, 
with a lag of no more than seven days after the test date. 
• The National Treasury Management Agency will provide provisional figures on 
the outstanding stock of net government de bt with a lag of no more than seven 
days after the test date. The revised figures  will be provided with in three months of 
the test date. 
• The National Treasury Management Agency will provide the final stock of the 
central government system external payments  arrears to the IMF staff, with a lag 
of not more than seven days after th e arrears arise in accordance with the 
definition of external payments arrears as set forth in paragraph 12 of this 
memorandum.  
 Detailed macroecono mic projections 
 
Table 1: Use and supply of goods and servi ces (volume)
Annual % change 2008 2009 2010 2011 2012 2013 2014 2015
  1. Private consumption expenditure -1.8 -7.2 -1.4 -1.9 -1.0 0.5 1.6 1.6
  2. Government consumption expenditure 2.8 -4.1 -2.2 -5.7 -0.8 -2.4 -3.7 -2.0
  3. Gross fixed capital formation -14.3 -31.1 -21.1 -8.9 1.8 4.3 7.5 5.1
  4. Final domestic demand -4.6 -12.4 -5.1 -3.8 -0.6 0.4 1.3 1.4
  5. Change in inventories
  6. Domestic demand -5.0 -13.9 -4.3 -3.4 -0.7 0.3 1.4 1.4
  7. Exports of goods and services -0.8 -4.1 5.7 4.5 4.5 4.6 4.7 4.9
  7a.  - of which goods -0.2 -5.2 4.5 5.0 4.8 4.6 4.7 4.9
  7b.  - of which services -1.4 -2.9 7.1 4.0 4.2 4.6 4.7 4.9
  8. Final demand -3.0 -9.2 0.9 0.9 2.3 2.8 3.4 3.5
  9. Imports of goods and services -2.9 -9.7 2.3 0.9 2.7 3.3 3.9 4.2
  9a.  - of which goods -13.3 -18.4 0.6 0.7 3.0 3.3 3.9 4.2
  9b.  - of which services 6 . 5 - 3 . 33 . 4 1 . 12 . 53 . 33 . 94 . 2
 10. Gross domestic product at market prices -3.5 -7.6 -0.2 0.9 1.9 2.5 3.0 3.0
Contribution to change in GDP
 11. Final domestic demand -4.2 -11.3 -4.4 -3.1 -0.5 0.3 1.0 1.0
 12. Change in inventories + net acq. of valuables -0.4 -1.4 0.7 0.3 -0.1 0.0 0.0 0.0
 13. External balance of goods and services 1.4 3.8 3.4 3.7 2.5 2.2 1.9 2.0
Table 2: Use and supply of goods and servi ces (value)
Annual % change 2008 2009 2010 2011 2012 2013 2014 2015
  1. Private consumption expenditure 1.2 -11.3 -2.8 -1.5 -0.2 2.1 3.5 3.6
  2. Government consumption expenditure 9.1 -5.9 -5.0 -4.8 -1.3 -1.9 -3.2 -1.5
  3. Gross fixed capital formation -20.5 -38.0 -25.6 -10.2 2.1 7.0 11.8 10.2
  4. Final domestic demand -3.8 -16.6 -7.4 -3.5 -0.2 1.9 3.2 3.6
  5. Change in inventories -82.6 -898.7 -52.5 -43.5 15.0 3.0 -11.0 0.0
  6. Domestic demand -4.8 -18.0 -6.5 -3.2 -0.3 1.9 3.3 3.6
  7. Exports of goods and services -1.4 -3.6 6.2 5.1 6.6 5.6 5.8 6.0
  8. Final demand -3.3 -11.1 0.1 1.4 3.7 4.0 4.8 5.0
  9. Imports of goods and services -1.1 -10.1 2.7 1.4 4.9 4.3 4.9 5.2
  10. Gross national income at market prices -5.1 -15.4 -4.7 -0.5 1.1 2.4 4.0 4.4  11. Gross value added at basic prices -3.9 -9.3 -2.4 1.6 2.9 3.7 4.5 4.8
 12. Gross domestic product at market prices -5.0 -11.3 -2.0 1.4 2.7 3.8 4.6 4.8
Table 3: Implicit price deflators
% change in implicit price deflator 2008 2009 2010 2011 2012 2013 2014 2015
  1. Private consumption expenditure 3.0 -4.4 -1.5 0.4 0.8 1.6 1.8 1.9
  2. Government consumption expenditure 6.2 -1.8 -2.9 1.0 -0.5 0.4 0.5 0.5
  3. Gross fixed capital formation -7.3 -10.0 -5.6 -1.4 0.3 2.6 4.0 4.8
  4. Domestic demand 0.5 -4.9 -2.4 0.3 0.4 1.5 1.9 2.1
  5. Exports of goods and services -0.7 0.6 0.5 0.5 2.0 1.0 1.0 1.0
  6. Final demand 0.0 -2.2 -0.9 0.4 1.4 1.2 1.3 1.4
  7. Imports of goods and services 1.9 -0.4 0.4 0.5 2.1 1.0 1.0 1.1
  8. Gross domestic product at market prices -1.5 -4.0 -1.8 0.4 0.8 1.4 1.6 1.7
       HICP 3.1 -1.7 -1.5 0.4 0.6 1.6 1.8 1.9   
 39Table 4: Labour market and cost
Annual % change 2008 2009 2010 2011 2012 2013 2014 2015
1. Labour productivity -2.4 0.6 3.9 1.7 1.3 1.3 1.4 1.1
2. Compensation of employees per head 3.4 0.0 -2.1 0.5 0.1 1.1 1.4 1.5
3. Unit labour costs 4.5 -3.5 -5.5 -1.5 -1.4 0.0 0.1 0.54. Total population 1.6 0.6 0.1 0.0 0.1 0.4 0.5 0.5
5. Population of working age (15-64 years) 1.0 -0.1 -0.8 -0.9 -0.8 -0.3 -0.1 0.1
6. Total employment -1.1 -8.1 -4.0 -0.8 0.6 1.1 1.5 2.07. Calculated unemployment rate - Eurostat definition (%) 6.3 11.8 13.6 13.4 12.7 11.4 10.1 8.7
Table 5: External balance
levels 2008 2009 2010 2011 2012 2013 2014 2015
1. Exports of goods (fob) 81.0 77.0 81.1 85.8 91.4 96.4 102.0 108.1
2. Imports of goods (fob) 57.2 44.7 45.3 45.9 48.1 50.1 52.6 55.4
3. Trade balance (goods, fob/fob) (1-2) 23.8 32.4 35.8 39.9 43.3 46.3 49.4 52.7
3a. p.m. (3) as % of GDP 13.2 20.3 22.9 25.1 26.6 27.4 27.9 28.4
4. Exports of services 69.1 67.8 72.7 75.8 80.9 85.4 90.4 95.8
5. Imports of services 76.7 75.7 78.3 79.4 83.3 86.9 91.2 95.9
6 .  S e r v i c e s  b a l a n c e  ( 4 - 5 ) - 7 . 5- 8 . 0- 5 . 7 - 3 . 6- 2 . 4- 1 . 4- 0 . 8- 0 . 1
6a. p.m. 6 as % of GDP -4.2 -5.0 -3.6 -2.3 -1.5 -0.9 -0.4 -0.1
7. External balance of goods & services (3+6) 16.3 24.4 30.1 36.3 40.9 44.9 48.6 52.6
7a. p.m. 7 as % of GDP 9.1 15.3 19.3 22.9 25.1 26.5 27.5 28.4
8. Balance of primary incomes and current -25.2 -29.2 -31.5 -34.3 -37.2 -40.4 -43.1 -45.7
8a. - of which, balance of primary income -22.7 -27.0 -29.7 -32.4 -35.4 -38.6 -41.3 -43.8
8b. - of which, net current Transfers -2.5 -2.2 -1.8 -1.9 -1.8 -1.8 -1.8 -1.9
8c. p.m. 8 as % of GDP -14.0 -18.3 -20.1 -21.6 -22.9 -23.9 -24.3 -24.7
9. Current external balance (7+8) -8.9 -4.8 -1.4 2.0 3.7 4.4 5.6 6.9
9a. p.m. 9 as % of GDP -5.0 -3.0 -0.9 1.2 2.3 2.6 3.1 3.7
10. Net capital transactions 0.0 -1.3 0.0 0.0 0.0 0.0 0.0 0.1
11. Net lending (+)/ net borrowing (-) (9+10) -8.9 -6.1 -1.3 2.0 3.7 4.4 5.6 7.0
11a. p.m. 11 as % of GDP -4.9 -3.8 -0.9 1.2 2.3 2.6 3.1 3.8  
 40Table 6: Fiscal accounts
2008 2009 2010 2011 2012 2013 2014 2015
% of GDP
Indirect taxes 12.4 11.3 11.3 11.1 10.9 11.0 11.1 11.2
Direct taxes 11.5 10.7 10.3 11.1 11.7 12.0 12.2 12.1Social contributions 7.0 7.2 7.3 7.2 7.1 7.0 6.8 7.0Sales 1.7 2.2 2.4 2.4 2.0 1.9 1.9 1.9Other current revenue 1.7 1.7 1.8 1.9 1.6 1.6 1.6 1.5
Total current revenue 34.3 33.2 33.1 33.6 33.3 33.4 33.6 33.7
Capital transfers received 1.2 1.3 2.1 1.3 1.4 1.4 1.4 1.4
Total revenue 35.4 34.5 35.2 34.9 34.7 34.8 35.0 35.0
Compensation of employees 11.3 12.3 11.7 11.3 10.8 10.2 9.6 9.1
Intermediate consumption 5.5 5.8 5.9 5.2 4.9 4.6 4.0 3.7
Social transfers in kind via market producers 2.0 2.1 2.1 2.0 1.8 1.5 1.3 1.2Social transfers other than in kind 12.4 15.3 16.1 15.6 14.8 13.9 13.0 12.4Interest paid 1.4 2.2 3.0 4.1 4.1 5.7 6.2 6.0Subsidies 0.5 0.5 0.8 0.7 0.7 0.7 0.7 0.6Other current expenditure 2.5 2.7 2.2 2.1 2.1 2.0 1.9 1.8
Total current expenditure 35.7 40.9 41.8 41.0 39.2 38.5 36.7 34.8
Gross fixed capital formation 5.2 4.7 4.5 3.5 3.1 2.8 2.4 2.3
Other capital expenditure 1.9 3.2 21.0 1.1 1.0 1.0 0.9 0.9
Total expenditure 42.7 48.9 67.2 45.6 43.3 42.3 40.0 38.0
General Government balance (EDP) -7.3 -14.4 -32.0 -10.6 -8.6 -7.5 -5.1 -2.9
% change
Indirect taxes -11.6 -19.1 -1.9 -0.8 0.9 5.1 5.5 5.3
Direct taxes -13.9 -17.3 -5.9 9.4 8.6 6.3 6.6 4.0Social contributions 2.7 -8.8 -0.1 -0.5 0.8 2.1 2.7 7.2Sales 0.3 17.8 3.6 1.4 -11.2 -5.5 4.6 4.8Other current revenue 35.6 -9.6 0.5 4.6 -12.4 3.2 3.7 3.8
Total current revenue -7.7 -14.1 -2.3 2.9 1.9 4.2 5.2 5.1
Capital transfers received -29.1 3.1 50.2 -33.6 6.9 3.1 3.8 4.2
Total revenue -8.6 -13.5 -0.2 0.7 2.1 4.1 5.1 5.1
Compensation of employees 7.0 -3.1 -7.0 -2.3 -2.3 -1.6 -1.5 -0.5
Intermediate consumption 3.8 -6.4 -1.3 -9.9 -3.2 -3.7 -7.7 -5.1
Social transfers in kind via market producers 10.8 -5.7 -2.2 -5.3 -7.7 -10.4 -8.5 -6.6
Social transfers other than in kind 13.3 9.1 3.2 -1.6 -2.3 -2.9 -2.0 -0.1Interest paid 25.1 38.7 38.3 35.5 3.8 44.0 13.3 1.9Subsidies 7.9 -9.4 38.0 0.0 0.0 0.0 0.0 0.3Other current expenditure 3.4 -5.8 -21.2 -1.0 0.0 0.0 0.0 0.3
Total current expenditure 9.2 1.8 -0.1 -0.4 -1.9 2.1 -0.4 -0.6
Gross fixed capital formation 4.9 -18.9 -7.2 -21.4 -7.3 -7.8 -8.5 0.0
Other capital expenditure 69.8 52.2 535.0 -94.8 -3.8 0.0 0.0 0.0
Total expenditure 10.4 1.5 34.6 -31.3 -2.4 1.4 -0.9 -0.6
Nominal GDP, EUR bn 180.0 159.6 156.4 158.5 162.8 169.1 176.9 185.5
 
 41Table 7: Government debt dynamics
2008 2009 2010 2011 2012 2013 2014 2015
EDP deficit (% of GDP) -7.3 -14.4 -32.0 -10.6 -8.6 -7.5 -5.1 -2.9
EDP gross debt (% of GDP) 44.3 65.5 98.9 113.5 120.0 121.8 120.3 116.7
levels, EUR bn
EDP deficit -13.1 -23.0 -50.1 -16.8 -14.0 -12.6 -9.0 -5.4
Gross debt 79.8 104.6 154.7 179.9 195.3 205.9 212.9 216.4
Change in gross debt 32.5 24.8 50.1 25.2 15.4 10.5 7.0 3.6Nominal GDP 180.0 159.6 156.4 158.5 162.8 169.1 176.9 185.5
Real GDP 146.9 135.8 135.5 136.8 139.4 142.8 147.1 151.6
Real GDP growth (% change) -3.5 -7.6 -0.2 0.9 1.9 2.5 3.0 3.0
Change in gross debt (% of GDP) 18.0 15.5 32.0 15.9 9.5 6.2 4.0 1.9
Stock-flow adjustments (% of GDP) 10.7 1.1 0.0 5.3 0.8 -1.3 -1.1 -1.0
% of GDP
Gross debt ratio 44.3 65.5 98.9 113.5 120.0 121.8 120.3 116.7
Change in gross debt ratio 19.3 21.2 33.4 14.6 6.4 1.8 -1.4 -3.6
Contribution to change in gross debt
Primary balance 5.9 12.2 29.0 6.6 4.5 1.8 -1.1 -3.1
"Snow-ball" effect 2.7 8.0 4.4 2.8 1.1 1.3 0.8 0.5
of which
Interest expenditure 1.4 2.2 3.0 4.1 4.1 5.7 6.2 6.0
Real growth effect 0.9 3.8 0.1 -0.9 -2.1 -2.8 -3.4 -3.5Inflation effect 0.4 2.0 1.2 -0.4 -0.8 -1.6 -1.9 -2.0
Stock-flow adjustments 10.7 1.1 0.0 5.3 0.8 -1.3 -1.1 -1.0
Implicit interest rate 5.2 4.3 4.6 4.2 3.7 4.9 5.3 5.2
Note: 
Gross debt projections include injections of EUR 10 bn of fresh capital into the banking system in 2010 and EUR 15 
bn in 2011, above and beyond the already announced capital injections.