COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/77/EU of 7 December 2010 on granting Union financial assistance to Ireland Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/77/EU of 7 December 2010 on granting Union financial assistance to Ireland
Date: 2011-05-10
Institutions: European Commission
Subjects: EU aid, economic recession, economic stabilisation, financial aid, financial policy, financial situation, reflation, regions of Ireland

EUROPEAN COMMISSION 

Brussels, 10.5.2011 
COM(2011) 268 final 

2011/0118 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

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

 
 
  
 
EXPLANATORY MEMORANDUM 

Upon a request by Ireland, the Council granted financial assistance to Ireland on 7 December 
2010  (Council  Implementing  Decision  2011/77/EU)  in  support  of  a  strong  economic  and 
financial  reform  programme  aiming  at  restoring  confidence,  enabling  the  return  of  the 
economy to sustainable growth, and safeguarding financial stability in Ireland, the euro area 
and the EU.  

In line with Article 3(9) of Decision 2011/77/EU, the Commission, together with the IMF and 
in liaison with the ECB, has conducted the first review of the Irish authorities' progress on the 
implementation  of  the  agreed  measures  as  well  as  of  the  effectiveness  and  economic  and 
social impact of the agreed measures.  

Taking  into  account  the  revised  economic  outlook,  as  well  as  intervened  information 
(including  that  generated  by  the  Prudential  Capital  Assessment  Review  and  Prudential 
Liquidity  Assessment  Review  exercises,  completed  by  the  Central  Bank  of  Ireland  on  31 
March  2011),  and  policy  priorities  of  the  government  elected  on  25  February  2011,  the 
Commission proposes to modify the economic policy conditions underpinning the assistance 
as  explained  below.  The  Commission  views  the  proposed  changes  to  the  economic  policy 
conditions  as  necessary  to  ensure  the  smooth  implementation  of  the  programme  and  secure 
the programme's objectives. 

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2011/0118 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

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

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Regulation  (EC)  No  407/2010  of  11  May  2010  establishing  a 
European financial stabilisation mechanism1, and in particular Article 3(2) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

Upon a request by Ireland, the Council granted financial assistance to Ireland (Council 
Implementing  Decision  2011/77/EU)  in  support  of  a  strong  economic  and  fiancial 
reform programme aiming at restoring confidence, enabling the return of the economy 
to sustainable growth, and safeguarding financial stability in Ireland, the euro area and 
the EU. 

In  line  with  Article  3(9)  of  Implementing  Decision  2011/77/EU,  the  Commission, 
together with the IMF and in liaison with the ECB, has conducted the first review of 
the  authorities'  progress  on  the  implementation  of  the  agreed  measures  as  well  as  of 
the effectiveness and economic and social impact of the agreed measures. 

Under the Commission's current projections for nominal GDP growth (-3.6% in 2010, 
1.3% in 2011, 2.8% in 2012 and 4.0% in 2013), the fiscal adjustment path is in line 
with the 7 December 2010 Council Recommendation to Ireland under Article 126(7) 
of the Treaty and is consistent with a path for the debt-to-GDP ratio of 96.2% in 2010, 
112.0% in 2011, 117.9% in 2012 and 120.3% in 2013. The debt to GDP ratio would 
therefore be stabilised in 2013 and be placed on a declining path thereafter, assuming 
further progress in the reduction of the deficit. Debt dynamics are affected by several 
below-the-line operations, including capital injection into banks in 2011 with net debt-
increasing  effect  of  around  6 pps  of  GDP,  an  assumption  to  maintain  high  cash 
reserves, and differences between accrued and cash interest payments. 

(4) 

The recapitalization of Allied Irish Bank, Bank of Ireland, and EBS Building Society 
to a 12% core tier 1 capital ratio (based on the 2010 PCAR), which was to be done by 

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OJ L 118, 12.5.2010, p. 1. 

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(5) 

(6) 

(7) 

February  2011,  was  postponed  by  the  outgoing  government  due  to  the  impending 
general elections. 

On  31  March  2011,  the  Central  Bank  of  Ireland  announced  the  results  of  the 
Prudential Capital Assessment Review (PCAR)  and Prudential Liquidity Assessment 
Review  (PLAR).  On  the  basis  of  these  assessments,  the  four  participating  domestic 
banks  (Allied  Irish  Bank,  Bank  of  Ireland,  EBS  Building  Society  and  Irish  Life  & 
Permanent)  were  found  to  need  a  total  of  EUR  24  billion  in  additional  capital, 
including  contingent  capital  of  €3  billion,  to  remain  adequately  capitalised  under  a 
stress scenario.  

On 31 March 2011 the new government, which was formed following the 25 February 
2011  elections,  announced  its  strategy  to  strengthen  and  reform  the  domestic  banks, 
including  by  ensuring  that  the  capitalization  need  identified  by  the  PCAR/PLAR 
exercise be met. This would bring domestic banks' core tier 1 capital ratio by end July 
2011  (subject  to  appropriate  adjustment  for  expected  asset  sales  in  the  case  of  Irish 
Life  &  Permanent)  well  above  the  level  that  had  been  envisaged  to  be  reached  by 
February 2011. 

The Central Bank of Ireland should require Allied  Irish Bank,  Bank  of  Ireland,  EBS 
Building  Society  and  Irish  Life  &  Permanent  to  meet  a  target  loan-to-deposit  ratio 
(LDR) of 122,5% by end-2013, while avoiding the fire sale of assets. In addition, the 
Irish authorities should closely monitor the evolution of the Net Stable Funding ratio 
and  the  Liquidity  Coverage  ratio  of  the  banks  so  as  to  ensure  convergence  with  the 
standards emerging within the Basel III framework. The authorities should ensure that 
targets  are  achieved  by  establishing  a  credible  framework  for  monitoring  progress 
based  on  interim  targets  and  appropriately  incentivised  governance  arrangements 
within the banks. 

(8) 

Upon  taking  office,  the  new  government  launched  a  comprehensive  review  of 
expenditure  to  identify  efficiency  savings  and  to  closely  align  the  priorities 
underpinning  the  fiscal  consolidation  to  those  in  the  programme  for  government  for 
national recovery 2011-16 announced on 7 March 2011. 

(9) 

In light of these developments, Council Implementing Decision 2011/77/EU should be 
amended. 

HAS ADOPTED THIS DECISION:  

Article 1 

Article 3 of Council Implementing Decision 2011/77/EU is amended as follows: 

(1) in paragraph 5, point (a) is replaced by the following: 

'(a) take action to ensure that domestic banks are adequately capitalised in the form 
of  equity,  if  needed,  so  as  to  ensure  that  they  respect  the  minimum  regulatory 
requirement  of  a  10.5%  core  tier  1  capital  ratio  for  the  entire  length  of  the  EU 
financial  assistance  programme,  while  deleveraging  towards  the  target  loan-to-
deposits ratio of 122.5% by end-2013.' 

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(2) in paragraph 7: 

(a) 

in point (b) the following sentence is added: 

'In consultation with the European Commission, the IMF and the ECB, Ireland may 
introduce  budgetary  changes  to  the  above  specified  measures  to  fully  realise 
efficiencies  that  are  to  be  identified  by  the  ongoing  Comprehensive  Review  of 
Expenditure and the priorities of the Programme for Government, consistent with the 
overall objective to ensure that the budget for 2012 yields a fiscal consolidation of at 
least EUR 3.6 bn.'  

(b) 

point (e) is replaced by the following: 

'(e) Adoption of measures reinforcing a credible budgetary strategy and to strengthen 
the budgetary framework. Ireland shall adopt and implement the fiscal rule that any 
additional  unplanned  revenues  in  2011-2015  will  be  allocated  to  deficit  and  debt 
reduction. Ireland shall establish a fiscal advisory council to provide an independent 
assessment of the Government's budgetary position and forecasts. Ireland shall adopt 
a Fiscal Responsibility Law introducing a medium-term expenditure framework with 
binding multi-annual ceilings on expenditure in each area. This shall be made taking 
into  account  any  revised  economic  governance  reforms  at  EU  level  and  build  on 
reforms already in place.'  

(c) 

point (g) is replaced by the following: 

'(g) Recapitalisation of the domestic banks by end July 2011 (subject to appropriate 
adjustment for expected asset sales in the case of Irish Life & Permanent) in line with 
the  findings  of  the  2011  PLAR  and  PCAR,  as  announced  by  the  Central  Bank  of 
Ireland on 31 March 2011.'  

(d) 

point (l) is replaced by the following: 

'(l) To enhance competition in open markets, legislation shall be reformed to generate 
more  credible  deterrence  by  ensuring  the  availability  of  effective  sanctions  for 
infringements of Irish competition law and Articles 101 and 102 of the Treaty on the 
Functioning of the European Union as well as ensuring the effective functioning of 
the  Competition  Authority.  In  addition,  for  the  duration  of  the  programme,  the 
authorities will ensure that no further exemptions to the competition law framework 
will  be  granted  unless  they  are  entirely  consistent  with  the  goals  of  the  Union 
financial assistance programme and the needs of the economy.' 

(e) 

the following points (n), (o) and (p) are added: 

'(n) Deleveraging of the domestic banks towards the target for loan-to-deposit ratios 
established under the 2011 PLAR; 

(o) Preparation of a plan to underpin the  solvency and  viability of  undercapitalised 
institutions  in  the  credit  union  sector,  including  by  granting  the  Central  Bank  of 
Ireland  the  necessary  powers  to  promote  a  higher  degree  of  consolidation  of  the 
sector  through  mergers  where  appropriate,  with  government  financial  support  if 
warranted;  

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(p)  Submission  of  legislation  to  the  Oireachtas  to  assist  the  credit  unions  with  a 
strengthened  regulatory  framework  including  more  effective  governance  and 
regulatory requirements.' 

(3) In paragraph 8: 

(a) 

in point (a) the following sentence is added: 

'In consultation with the European Commission, the IMF and the ECB, Ireland may 
introduce  budgetary  changes  to  the  above  specified  measures  to  fully  realise 
efficiencies  that  are  to  be  identified  by  the  ongoing  Comprehensive  Review  of 
Expenditure and the priorities of the Programme for Government, consistent with the 
overall objective to ensure that the budget for 2013 yields a fiscal consolidation of at 
least EUR 3.1 bn.'  

(b) 

the following point (c) is added: 

'(c)  Deleveraging  of  the  domestic  banks  towards  the  loan-to-deposit  ratio  targets 
established under the 2011 PLAR.' 

This Decision is addressed to Ireland.  

Article 2 

Article 3 

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

Done at Brussels,  

For the Council 
The President 

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