Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/77/EU on granting Union financial assistance to Ireland
Date: 2011-08-24
Institutions: European Commission
Subjects: EU aid, Ireland, aid to undertakings, anti-crisis plan, budgetary equilibrium, economic recession, economic stabilisation

EUROPEAN COMMISSION 

Brussels, 24.8.2011 
COM(2011) 517 final 

2011/0224 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2011/77/EU 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 third 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 the need to launch a further liability management exercise to further secure private 
sector  contribution  to  the  envisaged  recapitalization  of  Bank  of  Ireland),  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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2011/0224 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2011/77/EU 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  (EU)  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  it  (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  Implementing  Decision  2011/77/EU,  the  Commission, 
together with the International Monetary Fund (IMF) and in liaison with the European 
Central Bank (ECB), has conducted the third 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 (1.1% in 2011, 
2.8% in 2012 and 3.8% in 2013), the fiscal adjustment path is in line with the Council 
Recommendation  to  Ireland  of  7  December  20102  pursuant  to  Article  126(7)  of  the 
Treaty  and  is  consistent  with  a  path  for  the  debt-to-GDP  ratio  of  109.9%  in  2011, 
116.2% in 2012 and 119.4% in 2013. The debt to GDP ratio would peak 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 percentage  points  of  GDP,  an  assumption  to  maintain  high  cash  reserves,  and 
differences between accrued and cash interest payments. 

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OJ L 118, 12.5.2010, p. 1. 
SEC(2010) 1515 final. 

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(4) 

The  authorities  have  indicated  that  there  are  very  realistic  prospects,  based  on  the 
results of the Liability Management Exercises (LME) conducted thus far, to secure a 
further  EUR  0.5  billion  private  sector  contribution  to  the  recapitalisation  of  Bank  of 
Ireland  by  December  31  2011.  In  light  of  the  already  large  public  cost  of  the  bank 
recapitalization,  and  given  the  conservative  approach  used  to  determine  Bank  of 
Ireland's recapitalisation need, it is now deemed unnecessary and indeed inappropriate 
to  inject  this  EUR  0.5  billion  in  advance  of  the  completion  of  the  LME  in  order  to 
meet  the  programme  deadline,  as  doing  so  would  result  in  higher  than  needed  fiscal 
cost  and  an  unnecessarily  high  capital  adequacy  ratio  for  Bank  of  Ireland  once  the 
proceeds from the LME become available. The deadline for the completion of this part 
of the recapitalization of Bank of Ireland has been reset to end-2011.  

(5) 

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

HAS ADOPTED THIS DECISION:  

Article 1 

In Article 3 of Implementing Decision 2011/77/EU, paragraph 7 is amended as follows: 

(1) point (g) is replaced by the following: 

"the recapitalisation of the domestic banks by end July 2011 (subject to appropriate 
adjustment for expected asset sales and liquidity management exercises in the cases 
of Irish Life & Permanent and Bank of Ireland) in line with the findings of the 2011 
Prudential Liquidity Assessment Review (PLAR) and Prudential Capital Assessment 
Review  (PCAR),  as  announced  by  the  Central  Bank  of  Ireland  on  31  March  2011. 
Ireland  shall  by  end-2011  ensure  the  recapitalisation  of  the  remaining  EUR  1.1 
billion  for  Irish  Life  &  Permanent,  and  EUR  0.5  billion  for  Bank  of  Ireland, 
including by providing public funds in the event that proceeds from asset sales and 
liquidity management exercises fall short of these amounts. 

(2) the following points are added: 

"(q) 
the  submission  to  the  Dáil,  by  end  October,  of  a  Pre  Budget  Outlook  setting 
out  a  medium-term  fiscal  consolidation  plan  for  2012  –  2015  outlining  the  overall 
composition  of  revenue  and  expenditure  adjustments  for  each  year,  consistent  with 
the targets set out in the Council Recommendation of 7 December 2010.  

the  announcement,  by  2012  Budget  day  (early  December  2011),  of  binding 
(r) 
medium-term  expenditure  cash  ceilings  and  set  out  revenue  and  expenditure 
measures to deliver the needed adjustment over 2012-2015.  

the  issuance  by  the  Central  Bank  of  Ireland,  by  end  December  2011,  of 
(s) 
guidance  to  banks  for  the  recognition  of  accounting  losses  incurred  in  their  loan 
book. 

the publication by the Central Bank of Ireland, by end December 2011, of new 

(t) 
guidelines for the valuation of collateral for bank loans. 

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(u) 
the preparation and discussion, by end December 2011, of a draft programme 
of asset disposals, including the identification of the potential assets to be disposed, 
any necessary regulatory changes, and a timetable for implementation." 

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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