COMMISSION STAFF WORKING DOCUMENT Economic Adjustment Programme for Ireland Spring 2013 Review Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/77/EU on granting Union financial assistance to Ireland
Date: 2013-06-11
Institutions: European Commission
Subjects: Ireland, balance of payments assistance, economic consequence, economic reform, economic stabilisation, economic statistics, euro area, financial statistics, macroeconomics

EUROPEAN 
COMMISSION 

Brussels, 11.6.2013  
SWD(2013) 212 final 

COMMISSION STAFF WORKING DOCUMENT 

Economic Adjustment Programme for Ireland 

Spring 2013 Review 

Accompanying the document 

Proposal for a 
COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2011/77/EU on granting Union financial assistance to 
Ireland 

{COM(2013) 434 final} 
{COM(2013) 435 final}

EN 

   EN 

 
 
 
 
 
  
 
 
European Commission 

Directorate-General for Economic and Financial Affairs 

Economic Adjustment Programme for Ireland 

Spring 2013 Review 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN ECONOMY 

Occasional Papers XXX 

ACKNOWLEDGEMENTS 

The  report  was  prepared  in  the  Directorate  General  for  Economic  and  Financial  Affairs 
under the direction of István P. Székely, Director and European Commission mission chief 
to Ireland, and Martin Larch, Head of Unit for Ireland, Poland and Lithuania. 

Contributors: 

Davide  Lombardo,  Quentin  Dupriez,  Martin  Larch,  Kristin  Magnusson,  Danila  Malvolti, 
Jānis  Malzubris,  Marie  Mulvihill,  Nigel  Nagarajan,  Wolfgang  Pointner,  Graham  Stull, 
Jacek  Szelożyński  and  Rada  Tomova.  Input  and  comments  from  Álvaro  Benzo  (DG 
ECFIN), Brigitte Brockmoeller (DG EMPL), Martin Cecot (DG ECFIN), Giuseppe Carone 
(DG  ECFIN),  Pierre  Gaudillat  (DG  ECFIN),  Dirk  Van  Den  Steen (DG SANCO),  Ana 
Xavier  (DG  ECFIN)  and  the  financial  crisis  task  force  of  the  Directorate  General  for 
Competition are gratefully acknowledged. 

Comments on the report would be gratefully received and should be sent, by mail or e-mail 
to: 

Martin Larch, 
European Commission, 
Head of Unit responsible for Ireland, Lithuania and Poland 
CHAR 14/174 
B-1049 Brussels 
E-mail: martin.larch@ec.europa.eu 

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
Contents 
Executive summary 
1. 
Introduction 
2.  Recent economic developments and outlook 
3.  Policy outlook 

3.1 
3.2 
3.3 

Fiscal policies 
Financial sector policies 
Structural reforms 

4.  Financing issues 
5.  Risks 
List of abbreviations 
Annex 1: Programme Implementation 
Annex 2: Debt sustainability analysis 
Annex 3: Supplementary tables 
Annex 4: Updated programme documents 

6 
9 
9 
18 
18 
26 
30 
37 
38 
40 
41 
46 
48 
51 

Figures 
Figure 1: Real GDP growth and contribution from select componentsError!  Bookmark 
not defined. 
Figure 2: HICP price levels 
Error! Bookmark not defined. 
11 
Figure 3: Unemployment 
11 
Figure 4: Annual change in residential property prices 
12 
Figure 5: Structural employment indicators 
14 
Figure 6: Yields on select Irish and peripheral banks' covered bonds 
14 
Figure 7: Retail and corporate deposit flows and interest rates 
15 
Figure 8: Eurosystem funding 
15 
Figure 9: Lending to households and NFCs 
15 
Figure 10: New mortgage lending flows 
15 
Figure 11: New business rates: mortgage and NFC loans, HH and NFC deposits 
Figure 14: General government balance projection 
Error! Bookmark not defined. 
Figure 15: Nominal GDP projections 
Error! Bookmark not defined. 
17 
Figure 12: Pre-crisis gains in per-capita consumption and post-crisis declines 
18 
Figure 13: Problems facing Irish SMEs 
23 
Figure 16: Deficit projections and EDP ceilings 
Figure 17: Revenue and expenditure growth 
23 
Figure 18: The role of Individual Health Identifiers (IHI) in a functional eHealth system  25 
35 
Figure 19: water services, efficiency and cost indicators 
Figure 20: Legal services costs in perspective 
36 
Figure 21: Debt repayment schedule 
Error! Bookmark not defined. 
47 
Figure 22: Debt-stabilising primary balance in baseline projections 
47 
Figure 23: Government debt projections 

Tables 
Table 1: Revised macroeconomic framework 
Table 2: 2013 fiscal accounts 
Table 3: Budgetary projections of the stability programme 
Table 4: Financing requirements 

16 
21 
24 
Error! Bookmark not defined. 

4 

 
 
Boxes 
Box 1: Ireland's 2013 Stability Programme 
Box 2: eHealth priorities remain key to structural improvements in health care 
Box 3: Activation effectiveness of employment support schemes 
Box 4: The high cost of legal services continues to cause problems 

22 
24 
32 
35 

5 

 
 
 
 
Executive summary 

Ireland  has  come  a  long  way  towards  addressing  the  external  and  internal 
macroeconomic  imbalances  accumulated  prior  to  the  crisis.  On  the  back  of 
strong  political  ownership,  coupled  with  appropriate  programme  design,  the 
steadfast  implementation  of  the  Irish  adjustment  programme  is  increasingly 
delivering  in  terms  of  regaining  market  access  and  making  progress  towards 
sustainable  economic  growth.  In  view  of  the  size  of  the  macro  imbalances  and 
banking  problems  at  the  start  of  the  programme,  there  is  a  need  to  safeguard 
achievements  against  complacency  and  to  complete  the  adjustment  process,  as 
imbalances in some areas remain significant. 

The economic recovery is continuing at a moderate but steady pace. Output is 
growing above the euro area average and employment has started rising. The drag 
from domestic demand was lower than previously anticipated in 2012, on account 
of better-than-expected resilience in private consumption and some initial recovery 
in investment. Private sector employment has also grown on a yearly basis for the 
last two quarters of 2012. 

Market confidence in Ireland's prospects continues to improve, with yields on 
medium-term bonds back to pre-crisis levels. Recent policy decisions of the EU 
and  the  ECB  have  strengthened  market  confidence  further.  In  particular,  the 
Council  agreed  in  principle  in  April  2013,  to  extend  the  maximum  average 
maturity of EFSM and EFSF loans by 7 years; the decision will be formalised end 
June  2013.  In  addition  to  the  arrangement  on  the  promissory  notes,  this  has 
facilitated two successful sales of new Irish debt, including with a 10-year maturity 
in March, with steadily declining yields in secondary markets. It has also enabled 
Ireland to build significant cash buffers, which are projected to amount to EUR 22 
bn at the end of 2013. 

Against  this  backdrop,  the  authorities'  compliance  with  programme 
conditionality remains generally strong. Most milestones for 2013Q1 were met 
in a timely fashion (the exception was a report on comparative health costs, which 
has been outsourced and is now expected to be delivered in the next few weeks). 
Progress  on  some  structural  reforms  initiated  earlier  in  the  programme  (e.g.,  the 
introduction of household water charges, the reform of the legal services, and the 
establishment of a central credit register) has been slower than expected. 

Fiscal  consolidation  objectives  have  so  far  been  achieved,  but  the  deficit 
remains  high.  The  2012  deficit  was  significantly  below  the  programme  ceiling, 
though  this  reflected  in  part  favourable  one-off  developments.  The  structural 
adjustment of the fiscal position is expected to continue in 2013, although a series 
of deficit-increasing one-off elements means that only a marginal reduction in the 
headline  deficit  is  expected  in  2013.  Fiscal  data  (on  a  cash  basis)  through  April 
have  also  evolved  broadly  in  line  with  programme  expectations.  Yet  continued 
6 

 
 
 
effort is required to remain within the agreed programme ceiling of 7.5% of GDP 
for  2013  (including  in  particular  the  effective  implementation  of  the  recent 
agreement with public service trade union to deliver further cuts in the public pay 
and  pension  bill),  further  reduce  the  deficit  over  the  medium-term  as  per  the 
outstanding  excessive  deficit  procedure,  and  put  the  public  debt  ratio  on  a  firm 
downward trajectory. 

Important  challenges  remain  also  in  other  policy  areas,  requiring  continued 
determined action. These include the high unemployment rate and its worryingly 
large  long-term  component,  the  large  and  still  growing  (albeit  at  declining  pace) 
bank  arrears,  the  large  debt  overhang  on  both  households  and  corporates 
(especially  SMEs),  and  banks'  weak  profitability.  Unless  these  challenges  are 
vigorously  addressed,  they  could  stifle  the  demand  and  supply  of  credit,  put  a 
brake  on  the  incipient  recovery  of  domestic  demand,  endanger  the  prospects  for 
continued  successful  fiscal  adjustment,  and  further  weigh  on  the  banks' 
profitability.  

With the appropriate input from the national supervisor and regulator, banks 
need  to  step  up  their  efforts  to  address  troubled  loans.  Some  momentum  on 
mortgages  is  visible,  as  a  result  of  the  recent  establishment  of  targets  by  the 
Central Bank of Ireland (CBI) for banks to offer sustainable restructuring solutions 
to troubled mortgages. But SME loans also require immediate attention (some 25% 
of SME/corporate loans were impaired at end December 2012, more than half of 
the  total  stock  of  outstanding  SME  lending  is  property-related).  Addressing  the 
extensive  debt  overhang  in  this  key  sector  is  equally  important  to  support  the 
economic adjustment and recovery.  

At the same time, it is essential that payment discipline is not compromised. 
The  soon-to-be-operational  personal  insolvency  framework  represents  a  key  step 
towards  facilitating  private  sector  balance  sheet  repair  (and  as  such  it  should  be 
equipped  with  all  necessary  infrastructures,  in  terms  of  a  sufficient  number  of 
licensed  practitioners  and  adequate  dedicated  resources  for  the  courts,  from  the 
start).  To  avoid  adverse  effects  on  borrowers'  payment  discipline,  it  needs  to  be 
supported by the completion of other ongoing reforms, such as the elimination of 
the  legal  impediments  for  banks  to  repossess  their  collateral  when  necessary  and 
the revision of the code of conduct on mortgage arrears to better clarify mortgage 
borrowers'  rights  and 
terms  of  good-faith 
the  obligations  (especially 
cooperation). 

in 

Addressing structural issues in the labour market remains a priority. Over the 
past  few  years  the  labour  market  has  experienced  a  sharp  increase  in  overall 
unemployment  (particularly  acute  for  the  youth)  and  rising  skills  mismatches. 
Government  policies  to  address  these  issues  have  rightly  focused  on  putting  in 
place activation policies, reforming vocational education and training and seeking 
to foster job-creation. Progress however could have been faster in light of the scale 

7 

 
 
of  the  problem.  Some  bottlenecks  are  especially  evident  when  it  comes  to 
providing a uniform level of service to unemployed across the country.  

Other  reforms  are  also  continuing,  though  in  some  cases  delays  are 
accumulating. The authorities have identified new programme milestones to guide 
the reform of the health sector, while postponing to 2014Q4 (from January 2014) 
the introduction of water charges for households, to allow for more dwellings to be 
metered  and  thus  enhance  the  acceptability  of  this  measure.  Another  important 
reform facing obstacles on the way towards completion is that of the legal services, 
which  remain  sheltered  from  competition  and  a  drag  on  the  economy's  overall 
competitiveness. More efforts are needed to overcome the current deadlock so as 
to  complete  the  parliamentary  treatment  of  the  Legal  Services  Regulation  Bill, 
which  was  first  published  by  the  government  under  the  programme  in  October 
2011.  

The  strategy  to  subject  PCAR  banks  to  a  meaningful  capital  assessment 
under the programme has been adapted in light of the evolving calendar for 
the  next  European  stress  testing  exercise,  envisaged  to  take  place  in  2014, 
before  the  ECB  fully  assumes  its  supervisory  role  under  the  Single  Supervisory 
Mechanism (SSM). The diagnostic of the Irish banks will be conducted ahead of, 
but  in  close  proximity  to,  the  forthcoming  SSM/European  Banking  Authority 
(EBA) test and is likely to take place in H1 2014. This will ensure the maximum 
possible  extent  of  consistency  in  terms  of  methodology,  scenarios,  capital 
requirements,  etc.  In  the  meanwhile,  and  in  preparation  for  the  SSM/EBA 
exercises, a series of supervisory steps will be undertaken by the Irish authorities 
in  consultation  with  the  troika  and  with  the  participation,  where  appropriate,  of 
external  consultants.  In  particular,  a  balance  sheet  assessment  will  be  completed 
before the end of the programme, to inform the supervisor and the banks, as well 
as the Troika, about actions that can be taken to strengthen banks' balance sheets 
ahead of the SSM/EBA exercises. 

A  successful  completion  of  the  10th  review  triggers  a  disbursement  of 
EUR 1 bn  from  the  EFSF.  The  IMF  and  the  UK  will  disburse,  respectively, 
EUR 1 bn  and  EUR 0.5 bn.  This  will  bring  the  total  amount  authorised  for 
disbursement under the programme to 92.9% of the overall international assistance 
of EUR 67.5 bn. 

8 

 
 
 
 
1. Introduction 

A  joint  European  Commission  (EC)/European  Central  Bank  (ECB)/International  Monetary  Fund 
(IMF)  (henceforth,  the  "troika")  mission  visited  Dublin  during  April  23-May  2  2013  for  the 
10th review of Ireland's EU/IMF-supported economic adjustment programme. Compliance with the 
programme  milestones  set  for  the  first  quarter  of  2013  remained  strong  overall  though  with 
occasional delays—see the compliance monitor in Annex 1 for a detailed account.  

The  mission  discussed  recent  economic  and  financial  developments  as  well  as  the  outlook 
(section 2),  the  main  policy  challenges  (section  3),1  and  the  government  funding  situation 
(section 4).  The  updated  Memorandum  of  Understandings  on  Specific  Economic  Conditionality 
(MOU),  reflecting  exchanges  and  agreements  with  the  authorities,  is  included  in  Annex  IV, 
together with other updated programme documentation. 

The mission also held constructive discussions on how best to underpin exit from the programme, 
including  in  consideration  of  the  evolving  calendar  for  the  next  round  of  European  banks'  stress 
tests prior to the ECB fully assuming its supervisory role under the Single Supervisory Mechanism 
(SSM) and currently envisaged in the early part of 2014. No final conclusions have been drawn and 
discussions will continue in the coming months. 

2. Recent economic developments and outlook  

The  recovery  in  the  Irish  economy  continued  in  2012,  and  is  becoming  more  broad-based. 
Real  GDP  grew  by  0.9%  in  2012  (0.7%  was  projected  at  the  time  of  the  9th  review).  Domestic 
demand  growth  has  also  proved  stronger  than  anticipated.  Private  consumption  fell  by  0.9%  in 
annual terms, almost a full percentage point less than expected, on the back of  modest but positive 
annual growth in the second half of 2012. Also government consumption declined somewhat less 
than had been estimated at the time of the 9th review. Gross fixed capital formation expanded by 
1.2% after contracting by double-digit figures for four consecutive years. While this expansion was 
mainly  driven  by  investment  in  aircrafts,  other  investment  categories  also  appeared  to  have 
bottomed  out.  Nominal  GDP  grew  by  2.9%  in  2012,  supported  by  favourable  terms  of  trade 
developments  while  inflation  continued  to  be  muted  in  April  (0.5%  annually)  on  the  back  of 
declining price pressures from energy and mortgages. Aggregate income as captured by real GNP 
grew  even  more  strongly  in  2012  (by  3.4%,  after  falling  by  2.5%  in  2011),  though  this  series  is 
traditionally  very  volatile  as  it  reflects  large  and  lumpy  flows  related  to  the  profits  in  the 
multinational sector.   

1 This report reflects information available as of 24 May 2013. 

9 

 
 
                                                      
Figure  1:  Y-o-y  real  GDP  growth  and 
contribution from select components 
10

%

8

6

4

2

0

-2

-4

-6

-8

2
0
1
0
Q
1

2
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3

2
0
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Q
4

Private consumption

Public consumption

Net exports

Investment

GDP

Source: CSO.  
Note:  Annual  growth  rates;  contributions  may  not  add  due 
to chain linking 

Figure 2: HICP price levels 

Euro area

Ireland

125

120

115

110

105

100

J
a
n
-
0
4

J
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4

N
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A
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N
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M
a
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-
1
2

O
c
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-
1
2

M

a
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-
1
3

Source: Eurostat. 
Note: Refers to HICP index, rebased to January 2004 = 100. 
The  straight  line  refers  to  the  hypothetical  HICP  level 
resulting  from  a  2%  annual  growth  rate  approximating  the 
ECB's definition of price stability, i.e. to  maintain inflation 
rates below, but close to, 2% over the medium term. 

High-frequency indicators suggest that the modest economic expansion has continued in the 
beginning  of  2013.  Industrial  production  grew  by  2.5%  q-o-q  on  a  seasonally  adjusted  basis  in 
quarter  of  2013,  reversing  some  of  the  weak  performance  of  the  high-tech  and  chemical  sectors 
seen during the second half of 2012. The most recent survey indicators such as manufacturing and 
services  PMIs  suggest  that  a  relatively  modest  expansion  can  also  be  expected  going  forward. 
Retail sales, services indices and housing market indicators have been relatively weak with flat or 
small  annual  negative  growth  rates  during  the  first  quarter  of  2013,  although  this  might  to  some 
extent be driven by temporary factors such as inclement weather and changed incentives for timing 
of car and first home purchases.  

External  performance  continues  to  be  solid  despite  headwinds  from  weak  demand  from 
European  trading  partners.  The  current  account  surplus  surged  to  4.9%  of  GDP  in  2012, 
reflecting not only the contraction in domestic demand, but also the competitiveness gains achieved 
through  increased  productivity,  inflation  continuously  below  the  euro  area  average,  and  cost-
cutting measures including on wages. However, recent research suggests that a large share of the 
current  account  improvement  is  due  to  firm-specific  factors  and  cannot  all  be  ascribed  to 
competitiveness  gains.2  Persistent  weakness  in  trading  partner  demand  is  nevertheless  affecting 
demand for merchandise exports, which fell by 4.9% on a seasonally adjusted basis during the first 
quarter of 2013 compared to the last quarter of 2012, also on account of the anticipated expiration 
of pharmaceutical patents. Given the high service import content of pharmaceutical sector exports, 
growth  rates  of  services  imports  were  comparatively  weak  in  the  second  half  of  2012  and  most 
likely buffered the effects on the trade balance. The rise in services exports, which have expanded 
by around 10% in annual terms every quarter since the second half of 2010, has partly substituted 
for weak goods export developments. 

2 FitzGerald, John, (2013), "The Effect of Re-domiciled Plcs on Irish Output Measures and the Balance of 
Payments", QEC Research Notes 2013/1/2 

10 

 
 
 
 
 
                                                      
Encouraging private sector employment gains have been recorded, though against a labour 
market  still  fraught  with  serious  structural  weaknesses  and  challenges.  Private  sector 
employment showed small but positive annual growth rates during the last two quarters of 2012, 
contributing  to  stabilising  the  unemployment  rate  at  14%  of  the  labour  force  for  the  third 
consecutive month in April 2013, a full one percentage point less than a year earlier. This was also 
enabled by a shrinking labour force and significantly higher reliance on part-time work, especially 
for males, although the latter phenomenon is not unusual in the initial stages of recovery. However, 
the  long-term  unemployment  rate  remains  high  among  all  age  groups  for  both  sexes,  with  the 
situation particularly severe for the youth and the low-skilled (Figure 5). The crisis has reinforced 
the structural shift in the labour market towards more highly qualified jobs, as employment among 
those  with  tertiary  education  steadily  increased  in  the  past  few  years  while  employment  among 
those with primary and secondary education declined significantly. 

At  the  same  time  credit  extension  to  the  domestic  economy  remains  weak  (Figure  9,  Figure 
10).  Credit  advanced  to  households  decreased  by  4.1%  year-on-year  (yoy)  in  March  2013 
(reflecting a 12.1% decline in consumer lending). Loans to Irish resident non-financial corporations 
(NFCs)  declined  by  4.1%  yoy  at  a  similar  pace  to  preceding  months  (Figure  9).  The  stock  of 
mortgage loans is 6% higher on an annual basis at the end Q1 2013, though this reflects increased 
activity in Q4 2012 (56% annual increase reported in Q4 2012) as, according to data released by 
the Irish Banking Federation (IBF),3 there was a decrease in mortgage lending of 65.8% quarter-on-
quarter  (qoq)  in  Q1  2013 and  a  fall  of  21.4% yoy. While  the  IBF  reports  that  the  first  quarter  is 
traditionally the weakest in any year and quarterly data tends to be volatile, the decrease between 
Q4  2012  and  Q1  2013  was  more  than  double  that  experienced  between  Q4  2011  and  Q1  2012.  
This sharp decrease may reflect the end of the tax incentive at the end of 2012 for first time buyers 
whose share of mortgage lending fell to the lowest levels since Q2 2011. 

Figure 3: Unemployment 

%

Live Register unemployment rate

16

14

12

10

8

6

4

2

0

Figure  4:  Annual  change  in  residential 
property prices  
20

National - all residential properties

%

National excluding Dublin - all residential properties

Dublin - all residential properties

15

10

5

0

-5

-10

-15

-20

-25

-30

J
a
n
-
0
7

J
u
l
-
0
7

J
a
n
-
0
8

J
u
l
-
0
8

J
a
n
-
0
9

J
u
l
-
0
9

J
a
n
-
1
0

J
u
l
-
1
0

J
a
n
-
1
1

J
u
l
-
1
1

J
a
n
-
1
2

J
u
l
-
1
2

J
a
n
-
1
3

M

a
r
-
0
7

S
e
p
-
0
7

M

a
r
-
0
8

S
e
p
-
0
8

M

a
r
-
0
9

S
e
p
-
0
9

M

a
r
-
1
0

S
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p
-
1
0

M

a
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-
1
1

S
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-
1
1

M

a
r
-
1
2

S
e
p
-
1
2

M

a
r
-
1
3

Source: CSO. Note: In percent.  

Source: CSO. Note: In percent. 

3 http://www.ibf.ie/Libraries/Research_Statistics/IBF-PwC_Mortgage_Market_Profile_Q1_2013.sflb.ashx 

11 

 
 
 
 
                                                      
Figure 5: Structural employment indicators 
Unemployment  rates  increased  sharply  across 
all  age  groups  for  both  men  and  women 
between Q4 2007 and… 

… Q4 2012, with a particularly acute situation 
for young male job seekers. 

Temporary  contracts have become  significantly 
more prevalent… 

…while  part-time  employment  among  men  has 
more than doubled. 

% of total

12

10

8

6

4

2

0

2
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2
0
1
0
Q
3

2
0
1
1
Q
2

2
0
1
2
Q
1

2
0
1
2
Q
4

14

12

10

8

6

4

2

0

% of total, 
males

% of total, 
females

Males (LHS)

Females (RHS)

2
0
0
0
Q
1

2
0
0
0
Q
4

2
0
0
1
Q
3

2
0
0
2
Q
2

2
0
0
3
Q
1

2
0
0
3
Q
4

2
0
0
4
Q
3

2
0
0
5
Q
2

2
0
0
6
Q
1

2
0
0
6
Q
4

2
0
0
7
Q
3

2
0
0
8
Q
2

2
0
0
9
Q
1

2
0
0
9
Q
4

2
0
1
0
Q
3

2
0
1
1
Q
2

2
0
1
2
Q
1

2
0
1
2
Q
4

40

35

30

25

20

15

10

5

0

Employment never ceased increasing for people 
with higher education … 

… while low-skilled young people have suffered 
the most from the rising unemployment rate. 

s
d
n
a
s
u
o
h
T

   Pre-primary, primary and lower secondary education
(levels 0-2)
   Upper secondary and post-secondary non-tertiary
education (levels 3 and 4)
   First and second stage of tertiary education (levels 5
and 6)
   No response

900

800

700

600

500

400

300

200

100

0

2
0
0
1
Q
1

2
0
0
1
Q
4

2
0
0
2
Q
3

2
0
0
3
Q
2

2
0
0
4
Q
1

2
0
0
4
Q
4

2
0
0
5
Q
3

2
0
0
6
Q
2

2
0
0
7
Q
1

2
0
0
7
Q
4

2
0
0
8
Q
3

2
0
0
9
Q
2

2
0
1
0
Q
1

2
0
1
0
Q
4

2
0
1
1
Q
3

2
0
1
2
Q
2

Source: Eurostat 

Fiscal consolidation objectives have continued to be met. The 2012 fiscal deficit (net of one-off 
financial  sector  support  measures,  which  are  excluded  from  the  EDP  deficit  ceilings  for  Ireland) 
was substantially lower than the programme ceiling (7.6% of GDP versus 8.6% of GDP), reflecting 
12 

 
 
 
 
 
 
 
 
 
 
continued determined budgetary implementation and strong revenue collection, but also favourable 
surprises in one-off revenues. As regards 2013, the cash deficit through April is broadly in line with 
the  programme  profile,  and  some  14%  lower  than  the  same  period  last  year,  mainly  due  to  the 
proceeds  from  the  sale  of  contingent  capital  notes  in  BOI  and  the  yoy  reduction  of  voted 
expenditure,  partially  offset  by  the  ELG  payments  in  March  2013  following  the  liquidation  of 
IBRC (Table 2).  

Banks  continue  to  make  progress  towards  a  more  sustainable  funding  structure  and,  more 
slowly, adequate profitability. Deposits in the three Irish-owned banks (BOI, AIB, PTSB) have 
remained resilient4 despite significant reductions in offered rates (Figure 7), the phasing out of the 
ELG  and  the  haircuts  imposed  on  non-insured  deposits  in  Cyprus.  The  reliance  on  Eurosystem 
funding has also been further significantly reduced,5 mostly as a result of the liquidation of IBRC 
(Figure 8). Cost reductions are also progressing, though much more remains to be done in this area 
to  bring  down  costs  in  line  with  the  reduced  size  of  banks'  balance  sheets.  Net  Interest  Margins 
(NIM)  have  improved  for  BOI  in  2012H2,  while  staying  broadly  flat-to-marginally-declining  for 
AIB and PTSB. This reflects mostly developments on the funding side (Figure 6), though of note 
some adjustment has taken place also on the lending rates (most recently AIB increased the lending 
rate on its SVRs, while BOI increased the spread on part of its UK residential mortgage book—see 
also Figure 11). The recent removal of the ELG at end March continues to improve the NIM as the 
guarantee rolls off maturing deposits. 

However,  concerns  with  respect  to  asset  quality  remain.  Arrears  continue  to  trend  upward, 
though at a somewhat slower pace. At the end of Q1 2013, non-performing loans (NPLs) accounted 
for almost 24% of the total loan books for the domestically-owned banks. This increase from 18% 
at  end  Q1  2012  is  the  result  of  a  combination  of  deleveraging  of  the  loan  books  and  a  further 
deterioration  in  asset  quality.  The  book  that  has  seen  the  greatest  increase  in  the  proportion  of 
NPLs  over  the  period  is  the  residential  mortgage  book,  particularly  the  Irish  buy-to-let  (BTL) 
segment, where NPLs increased by 16% yoy. The levels of NPLs at end-Q1 2013 were higher than 
the PCAR 2011 base case across all loan categories.  

The  outlook  for  profitability  also  remains  subdued,  especially  for  banks  with  a  large 
proportion of low yielding "trackers" on their balance sheets.6 From 2003 to 2008 the tracker 
rate and the Standard Variable Rate (SVR) closely followed each other. However, since 2008 they 
have  diverged  widely7,  with  a  SVR  for  a  new  mortgage  ranging  between  4.04%  -  4.3%8  at  the 

4 At end April 2013, at EUR 153.4 bn, these were EUR 2.2 bn (+1.5%) higher yoy (this includes a once-off 
reclassification of a life assurance company deposit which had a negative impact of EUR 1.2 bn), though a 
decline  of  EUR  2.4  bn  (-1.5%)  was  experienced  month-on-month  in  April  (-0.8%  net  of  once-off 
reclassification) as deposit rates continue to normalise and balance sheet funding requirements decline as a 
result of deleveraging (domestically owned banks' loan books size decreased by 7% during 2012). 
5 Eurosystem funding to domestcially owned banks continued to decline and was lower by about EUR 27 bn 
yoy in April, and by more than EUR 54 bn since January 2011. As a proportion of total Eurosystem funding 
this has fallen from a peak of nearly 19% to approximately 4.5% at end-April 2013. Total monetary authority 
funding  to  domestically-owned  Irish  banks  reduced  to  about  EUR 39 bn  at  end April  2013 from  a  peak  of 
EUR 156 bn in February 2011 (Figure 8). 
6  A  "tracker"  mortgage  is  priced  at  fixed  margin  over  the  ECB's  main  refinancing  rate.  This  margin  in 
Ireland's case has historically varied between 50-200 bps. 
7 See http://www.financialregulator.ie/publications/Documents/Variable%20Rates-final2.pdf 

13 

 
 
                                                      
domestically owned banks. Given that nearly 54% of the domestically owned banks' Irish mortgage 
books are tracker mortgages they represent a considerable drag on the banks' profitability outlook 
for years to come.9 The Net Interest Margin for each of the banks fell in the past two years ranging 
from  0.92%  -  1.4%  in  2011  to  0.72%  -  1.25%  in  2012  (excluding  ELG  fees).  Interestingly, 
although  they  feature  substantially  lower  interest  rates,  trackers  have  a  delinquency  rate  not 
dissimilar  to  that  of  the  SVRs,  possibly  reflecting  their  higher  loan-to-value  (LTV)  ratios  on 
average (itself a reflection of their vintage, with approximately 85% of trackers provided between 
2004 and 2008).  

For  2013  and  beyond,  projections  of  real  GDP  have  been  kept  largely  unchanged  although 
the  composition  has  changed  somewhat  compared  to  the  9th  review  (Table  1).10  Following  the 
better than expected outturn for private consumption and domestic demand during the second half 
of  2012,  the  projections  for  these  expenditure  categories  have  been  revised  up,  resulting  in  a 
smaller drag on growth from domestic demand in 2013 and the coming years. At the same time, 
forecasts for most trading partners demand have been downgraded since the time of the 9th review 
which accordingly has prompted slight cuts in export growth forecasts compared to the last set of 
projections.  Based  on  recent  data,  contributions  from  outward  migration  to  the  labour  force  are 
expected  to  be  somewhat  more  pronounced  than  previously  thought,  resulting  in  a  somewhat 
slightly lower rate of unemployment compared to the forecast at the time of the 9th review.  

Figure  6:  Yields  on  select  Irish  and 
peripheral banks' covered bonds  
3.5

3.5

%

%

3

2.5

2

1.5

1

BoI 3.125 Nov-15
AIB 3.125 Dec-15
AIB 2.625 Jul-16
BBVA 4.25 Mar-15
Banca Popolare Milano 3.25 Nov-15
Monte Paschi Siena 3.125 June-15

3

2.5

2

1.5

1

2
8
-
N
o
v
-
1
2

1
2
-
D
e
c
-
1
2

2
6
-
D
e
c
-
1
2

0
9
-
J
a
n
-
1
3

2
3
-
J
a
n
-
1
3

0
6
-
F
e
b
-
1
3

2
0
-
F
e
b
-
1
3

0
6
-
M

a
r
-
1
3

2
0
-
M

a
r
-
1
3

0
3
-
A
p
r
-
1
3

1
7
-
A
p
r
-
1
3

0
1
-
M
a
y
-
1
3

1
5
-
M
a
y
-
1
3

Source: Bloomberg 
Note:  Data  covers  daily  mid  yield-to-maturity  (YTM)  closing 
levels for each bond. 

Figure  7:  Retail  and  corporate  deposit 
flows and interest rates 
400

€ bn

%

Corp/NBFI deposits (lhs)
HH deposits (lhs)
HH deposit rate (rhs)
NFC deposit rate (rhs)

350

300

250

200

150

100

50

0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

D
e
c
-
1
0

F
e
b
-
1
1

A
p
r
-
1
1

J
u
n
-
1
1

A
u
g
-
1
1

O
c
t
-
1
1

D
e
c
-
1
1

F
e
b
-
1
2

A
p
r
-
1
2

J
u
n
-
1
2

A
u
g
-
1
2

O
c
t
-
1
2

D
e
c
-
1
2

F
e
b
-
1
3

A
p
r
-
1
3

Source: CBI 
Notes:  Deposit  flows  data  covers  BOI,  AIB  and  PTSB. 
Deposit rates data covers all Irish resident banks for fixed term 
<2  years.  HH=household;  NFC=non-financial  corporates; 
NBFI=non-bank financial intermediaries.   

8  New  SVR  25-year  mortgage  rates  with  75  loan-to-value  are  presently  ranging  between  4.04%  and  4.3% 
(source: www.nca.ie). Note: SVRs for existing mortgages may vary. 
9 As trackers have not been issued since early 2009, the share of trackers in the overall stock of mortgages is 
declining, albeit at a very slow rate. The authorities continue to explore, together with troika staff, options to 
lower the funding cost of banks’ tracker mortgage portfolios to reduce this drag. 
10 The authorities' latest projections have also gotten close to the projections by the Troika. For 2013 (2014), 
the  Department  of  Finance  (DOF)  of  Ireland  forecasts  real  GDP  growth  of  1.3  %  (2.4%)  according  to  the 
latest  update  of  the  Stability  Programme  (in  both  cases,  a  slight  downward  revision  compared  to  the 
corresponding forecasts underpinning the 2013 budget), while in its latest the Central Bank of Ireland (CBI) 
forecasts 1.2 % (2.5%).  

14 

 
 
 
                                                                                                                                                                 
Figure 8: Eurosystem funding 

Source: CBI, Department of Finance 
Note:  Data  covers  BOI,  AIB/EBS,  PTSB  and  IBRC  (up  to 
February  2013);  ELA  is  proxied  by  the  CBI's  "other  assets" 
series  through  March  2012  and  by  "other  claims  on  euro  area 
credit institutions" thereafter. 

Figure 10: New mortgage lending flows 

Top-up
Re-mortgage
Residential Investment Letting
First-time Buyer Purchaser
Mover Purchaser

3 000

€ mn

2 500

2 000

1 500

1 000

500

0

2
0
0
9
Q
1

2
0
0
9
Q
2

2
0
0
9
Q
3

2
0
0
9
Q
4

2
0
1
0
Q
1

2
0
1
0
Q
2

2
0
1
0
Q
3

2
0
1
0
Q
4

2
0
1
1
Q
1

2
0
1
1
Q
2

2
0
1
1
Q
3

2
0
1
1
Q
4

2
0
1
2
Q
1

2
0
1
2
Q
2

2
0
1
2
Q
3

2
0
1
2
Q
4

2
0
1
3
Q
1

Figure 9: Lending to households and NFCs 
12

%

Households

Mortgage loans

NFCs

10

8

6

4

2

0

-2

-4

-6

D
e
c
-
0
8

M

a
r
-
0
9

J
u
n
-
0
9

S
e
p
-
0
9

D
e
c
-
0
9

M

a
r
-
1
0

J
u
n
-
1
0

S
e
p
-
1
0

D
e
c
-
1
0

M

a
r
-
1
1

J
u
n
-
1
1

S
e
p
-
1
1

D
e
c
-
1
1

M

a
r
-
1
2

J
u
n
-
1
2

S
e
p
-
1
2

D
e
c
-
1
2

M

a
r
-
1
3

Source: CBI 
Notes:  Data  for  households  includes  mortgage  loans.  Figure 
shows annual rate of change (%). 

Figure  11:  New  business  rates:  mortgage 
and NFC loans, HH and NFC deposits 
6

%

HH mortgage loans
HH deposits
NFC loans
NFC deposits

5

4

3

2

1

0

D
e
c
-
1
0

F
e
b
-
1
1

A
p
r
-
1
1

J
u
n
-
1
1

A
u
g
-
1
1

O
c
t
-
1
1

D
e
c
-
1
1

F
e
b
-
1
2

A
p
r
-
1
2

J
u
n
-
1
2

A
u
g
-
1
2

O
c
t
-
1
2

D
e
c
-
1
2

F
e
b
-
1
3

Source: Irish Banking Federation (IBF) 
Note:  Figures  relate  to  all  new  lending  (flows)  secured  by 
residential  property  extended  by  IBF's  members.  (4  Quarter 
Moving Average) 

Source: CBI  
Notes: Rates on mortgage loans are for floating rates & up to 1 
year  fixation.  Rates  on  NFC  loans  are  for  >  EUR 1 mn  with 
floating  rates  &  up  to  1  year  fixation.  Deposit  rates  cover 
deposits with agreed maturity. 

15 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 1: Revised macroeconomic framework 

Tenth review forecasts (latest)
2012

2013

Ninth review forecasts (previous)
2014

2013

Real GDP growth
Private consumption
Public consumption
Fixed investment
Domestic demand (contribution)
Inventories (contribution)
Exports
Imports
Net trade (contribution)

Employment
Unemployment (percent)

GDP deflator
HICP inflation

2011

1.4
-2.3
-4.3
-12.2
-3.4
0.4
5.1
-0.3
5.4

-1.8
14.9

0.2
1.2

2016

2014

2011

2015

2012
% change on previous year (unless otherwise noted)
0.7
-1.8
-3.6
-2
-1.8
0.0
2.6
0.4
2.4

1.4
-2.3
-4.3
-12.2
-3.4
0.4
5.1
-0.3
5.4

2.7
1.6
-2.5
6
1
0.0
4.5
3.8
1.7

2.2
1.2
-2.8
4.0
0.5
0.0
3.5
2.6
1.7

2.8
1.6
0.3
5.1
1.4
0
4.5
4.2
1.5

0.9
13.7

1.3
1.3

2
12.9

1.6
1.6

2.1
12.4

1.6
1.8

-1.8
14.9

0.2
1.2

-1
14.8

1.8
1.9

0.9
-0.9
-3.4
1.1
-1
-0.2
2.9
0.3
2.8

-0.6
14.7

1.9
1.9

1.1
-0.1
-2.5
1
-0.4
0.0
2.6
1.7
1.5

0.2
14.1

1.3
1.3

1.1
-0.5
-2.5
-1.5
-0.9
0.0
3
1.6
1.9

0.1
14.6

1.3
1.3

2.2
1.2
-2.8
3.0
0.4
0.0
4.2
3.3
1.8

0.9
14.1

1.4
1.3

2015

2.8
1.8
2.5
5.2
0.9
0.0
4.4
3.7
1.8

2.1
13.1

1.6
1.6

Current account (% of GDP)
4.9
Nominal GDP (EUR billion)
163.6
Source: Commission Services' calculations. 

1.1
159.0

3.1
167.5

3.9
173.4

3.8
180.9

3.4
189.1

1.1
159.0

2.1
162.9

3.4
166.7

4.3
172.8

4.3
180.3

In spite of the deep macroeconomic adjustment, revisions of economic growth forecasts have 
been  comparatively  contained  since  the  onset  of  the  programme,  and  have  reflected  mostly 
deteriorations in the external outlook. However, the gap has been narrowing over time and, most 
importantly, economic growth stayed in positive territory. This is likely to reflect the interplay of a 
number  of  important  elements,  including  an  appropriate  degree  of  realism  of  programme 
projections, growth-friendly design of the programme to the extent possible, and the resilience of 
the Irish economy, which have helped to underpin consistently strong programme implementation. 
The  shortfall  in  nominal  GDP  (the  basis  for  many  public  finance  variables)  vis-à-vis  the 
projections, as shown in Error! Reference source not found.13 was also somewhat smaller than 
the shortfall in real GDP, which has supported the (over-) achievement of the fiscal targets. 

Figure  12:  General  government  balance 
projection  

Figure 13: Nominal GDP projections  

0

-2

-4

-6

-8

-10

-12

-14

2010

2011

2012

2013

2014

2015

% of GDP

EUR 

190

185

180

175

170

165

160

155

150

Feb-11

Jun-12

Jun-13

2011

2012

Feb-11

2013
Jun-12

2014

2015

Jun-13

Source: Commission Services' calculations.  

Source: Commission Services' calculations. 

Going  forward,  substantial  uncertainty  around  domestic  demand  projections  prevails,  but 
can be reduced with consistent policy implementation: 

16 

 
 
 
 
 
•  On  one  hand,  there  is  evidence  of  potential  scope  for  a  rebound  in  consumption.  Recent 
research11 has shown that Ireland's decline in per capita private consumption of over 20% 
since the pre-crisis peak was both about twice as large and more protracted than even the 
other euro area crisis countries, suggesting that there could be ample pent-up demand going 
forward  given  the  component's  dominant  GDP  weight.  The  fall in  consumption  has  been 
especially  pronounced  among  young  households,  reflecting  their  larger  exposure  to 
unemployment,  mortgage  arrears  and  negative  equity  or  the  risk  thereof.12  These  are 
factors  that  could  be  influenced  by  the  reforms  outlined  elsewhere  in  this  report.  One 
motive  for  cutting  back  on  spending  is  likely  so-called  buffer  stock  savings,  i.e.  to 
deleverage,  which  has  also  shown  up  as  improvements  in  indicators  of  household  debt 
sustainability, as well as the relatively high household savings ratio (12.5% in 2012). 

•  On  the  other  hand,  credit  constraints  could  stifle  a  recovery  in  investment,  especially  by 
SMEs. While the majority of Irish SMEs continues to cite demand factors rather than fear 
of  credit  applications  being  rejected  as  a  factor  for  not  seeking  bank  financing,  the 
perceived risk of not getting access to finance is growing. Although two independent data 
sources conclude that one in nine Irish SMEs appear to be credit constrained, those lacking 
access  to  credit  are  concentrated  among  small  and  young  firms,  further  underlining  the 
importance  of  sticking  to  policy  efforts  in  this  area  given  the  recent  evidence  of  their 
importance for job creation. 13 

Figure 12: Pre-crisis gains in per-capita consumption and post-crisis declines 

Pre-crisis percentage increase in real per capita
consumption over 2000 levels

Percentage peak to trough fall in real per capita
consumption since the crisis

60

50

40

30

20

10

0

-10

-20

-30

A
u
s
t
r
i
a

F
i
n
l
a
n
d

F
r
a
n
c
e

I
r
e
l
a
n
d

G
e
r
m
a
n
y

N
e
t
h
e
r
l
a
n
d
s

I
t
a
l
y

G
r
e
e
c
e

S
p
a
i
n

P
o
r
t
u
g
a
l

Source: O'Connell, O'Toole and Znuderl (2013) Trends in consumption since the Crisis. ESRI 

11 O'Connell, Brian, Conor O'Toole and Nusa Znuderl (2013), Trends in consumption since the crisis, ESRI 
Quarterly Economic Commentary, January 2013.  
12 Gerlach-Kristen, Petra (2013), The effect of unemployment, arrears and negative equity on consumption: 
Ireland in 2009/10, ESRI Working Paper No. 457, May 2013. 
13  O'Toole,  Conor,  Gerlach-Kristen,  Petra,  O'Connell,  Brian  (2013),  Measuring  Credit  Constraints  for  Irish 
SMEs, ESRI Quarterly Economic Commentary, March 2013, DKM Economic Consultants (2013) The SME 
lending market in Ireland and comparisons with European experience, May 2013, Lawless, Martina (2013), 
Age or Size? Determinants of Job Creation. Central Bank of Ireland Research Technical Paper No. 2/13. 

17 

 
 
 
                                                      
Figure 13: Problems facing Irish SMEs 

Average 2009-2011

October 2012-March 2013

Finding customers

Competition

Access to finance

Other

Source: O'Toole, Gerlach-Kristen and O'Connell (2013) "Measuring Credit Constraints for Irish SMEs", ESRI 

3. Policy outlook 

3.1  Fiscal policies 

The  2013  fiscal  target  remains  achievable,  though  risks  remain  related  to  the  planned  pay  and 
pension  bill  savings,  cost  containment  in  the  health  sector,  and  the  winding  down  of  IBRC.  The 
medium-term  fiscal  plans,  as  per  the  2013  Stability  Programme,  are  consistent  with  the  Council 
recommendation  under  the  EDP.  Looking  forward,  a  timely  delineation  of  the  specific  measures 
which  will  secure  the  planned  medium-term  consolidation  would  help  remove  uncertainty  and 
enhance the credibility of the fiscal plans. The authorities continue to align their fiscal framework 
with the EU guidelines and regulations, including in terms of the implications of the "two-pack" for 
the budgetary process.  

Current  forecasts  indicate  that  the  2013  fiscal  deficit  ceiling  remains  achievable,  though 
buffers have decreased. The structural adjustment of the fiscal position is expected to continue in 
2013, although a series of deficit-increasing one-off elements is likely to interrupt the reduction of 
the headline deficit. Based on data through April and in light of available information, Commission 
services forecast the 2013 deficit at 7.5% of GDP (7.3% at the time of the 9th review), just in line 
with the programme deficit ceiling (Table 2). Tax revenue is projected to exceed the budget time 
forecast  by  0.2%  of  GDP  based  on  over-performance  at  the  end  of  last  year.  Other  positive 
developments include a higher-than-budgeted surplus payment from the CBI and receipts from the 
agreed sale of Irish Life Limited (which, however, is largely a financial transaction). Against that, 
however,  the  liquidation  of  IBRC  and  the  exchange  of  the  promissory  notes  with  long-dated 
government bonds are now estimated to have a deficit-worsening impact of 0.1% of GDP for 2013. 
The Revised Estimates show somewhat higher departmental expenditure (less than 0.1% of GDP) 
largely due to a revision of the public service pay bill made in the context of the allocation of the 
planned  savings  from  the  pay  deal  under  discussion  with  the  unions  (see  below)  to  individual 
department. In addition Ireland's contribution to the 2013 EU budget is now estimated to be more 
than 0.1% of GDP higher than budgeted. This is largely due to the higher outturn of 2012 GNI as 
compared to the estimated level used in the 2013 budget. This will be partly offset by higher-than-

18 

 
 
 
 
expected  bank guarantee as a result of the ELG scheme closing on on 28 March rather than end 
February and a higher than estimated level of liabilities 

Several  risk  factors  warrant  close  monitoring  of  budget  execution    and,  if  necessary, 
compensatory  actions.  These  include:  (i)  a  possible  higher  one-off  cost  from  the  liquidation  of 
IBRC  (the  State  is  required  to  make  up  any  potential  difference  between  the  amount  paid  by 
NAMA for IBRC's assets and the valuation of those assets made by the special liquidators); (ii) the 
effective implementation of the planned savings on the public sector pay and pension bill (0.2% of 
GDP  in  2013—  around  half  of  which  from  paybill  savings  in  the  health  sector  in  that  year—
cumulating  to  0.6%  of  GDP  by 2015)  in  light  of  the  recent  challenges  to  reach  and  implement  a 
negotiated agreement with trade unions; (iii) continued pressures on health care budget,14 and (iv) 
the  possibility  that,  as  happened  in  2012,  the  planned  receipt  in  2013  of  some  0.2%  of  GDP  in 
dividends  from  AIB  in  the  form  of  ordinary  shares  may  be  offset  by  corresponding  government 
expenditure.15  

It is therefore essential that the planned savings in the public service pay and pension bill are 
achieved.  The  public  service  gross  pay  bill  represents  about  one-third  of  total  government 
expenditure so that failure to secure the planned savings could significantly derail the achievement 
of  the  government's  overall  consolidation  objectives,  both  in  2013  and  in  the  medium  term. 
Moreover, as pointed out in previous reports16, there is still a significant differential between public 
and private sector wages after controlling for such determinants as education, experience and age. 
Reducing the unit cost of delivering public services, rather than the number of service providers, is 
important  to  limit  the  adverse  impacts  of  the  necessary  consolidation  on  the  provision  of  public 
services  and  on  access  to  them  for  the  most  disadvantaged.  This  is  especially  important  when  it 
comes to the health sector, where around half of the 2013 pay and pension bill savings are assumed 
to be obtained.  

The government has sought to secure these savings in a negotiation with public sector unions, 
to  preserve  industrial  peace.  A  first  negotiated  deal,  the  so-called  "Croke  Park II"  deal,  was 
however  rejected  by  union  members.  A  revised  agreement,  the  so-called  Haddington  Road 
Agreement  (HRA),  was  published  on  21  May  2013  and  is  to  be  decided  upon  by  union 
memberships over the next few weeks. At the same time, legislation underpinning the Haddington 
Agreement  was  published.  In  addition  to  core  pay  and  pensions  reductions  measures  it  contains 
contingency  measures  designed  to  permit  the  authorities  to  make  the  necessary  savings  sought 
under  the  agreement  in  case  the  agreement  was  not  accepted.  Based  on  currently  available 
information,  the  government  expects  the  HRA  to  deliver  savings  that  are  close  to  the  budgeted 

14    The  HSE  March  2013  report    underlined  a  shortfall  against  the  budget  of  around  EUR  27  mn,  mainly 
stemming from hospitals, community services and Primary Care Reimbursement scheme (PCRS), the main 
areas  which  caused  slippages  in  the  past.  The  report  highlighted  that  this  negative  trend  could  lead  to 
significant  level  of  spending  overruns  by  year-end  in  absence  of  significant  delivery  on  health  cost 
containment  initiatives  and  additional  control  measures.  Concerns  were  expressed  on  the  current  PCRS 
shortfall  against  budget  (EUR  5  mn),  the  risks  from  the    implementation  of  Croke  Park  II  and  the  related 
flexibility  arrangement  actions  under  the  original  Croke  Park  agreement,  as    well  as  from  measures  to 
increase income from private insurances. 
15  See  Eurostat  for  a  discussion  of  the  issues  to  be  considered  in  determining  whether  the  ordinary  shares 
received  by  the  government  from  AIB  as  dividends  contain  an  element  of  capital  transfer  offsetting  the 
deficit-reducing impact of the dividends.  
16 See Economic Adjustment Programme for Ireland Autumn 2012 Review, p. 28.  

19 

 
 
                                                      
EUR 300 mn in 2013. 17 In parallel to the cost saving objective, the agreement seeks to improve the 
effectiveness  and  efficiency  of  government  employees,  encourage  flexibility  with  regard  to 
redeployment,  and  put  in  place  and/or  improve  performance  management  and  work-sharing 
arrangements.  

The authorities have also agreed to step up efforts to increase efficiencies in the provision of 
health services. As discussed in previous review reports, Ireland spends per capita comparatively 
more  on  the  health  sector  than  most  EU  countries,  without  achieving  improved  health  outcomes. 
The government intends to pursue a so-called "eHealth" strategy (see Box 2), which is based on a 
stepped-up reliance on IT to improve allocation of resources and ultimately strengthen incentives 
for efficient outcomes at all levels (i.e., healthcare providers within the acute hospital sector, those 
in primary care, and the patient). This increased focus is welcome, considering the pressures that 
have been building on the health budget. Other areas that offer significant prospects of increased 
efficiency, as discussed in previous reports, include mandatory prescriptions by International Non-
proprietary  Name  (INN)  to  encourage  generic  penetration,18    a  tighter  internal  reference  pricing 
system (to base the reference reimbursable price on the lowest, rather than the average, price within 
the  cluster),  as  well  as  prescribing  protocols  addressing  therapeutic  substitution  in  line  with 
international best practices, and a faster entry into the market for generics once the related patent 
has expired.19  

Monitoring,  reporting,  and  evaluation  of  the  Irish  healthcare  system  need  to  be  further 
strengthened.  Currently,  there  are  many  fragmented  information  and  monitoring  systems  on  the 
provision  of  healthcare  services,  which  negatively  impact  on  the  quality  and  timeliness  of 
reporting. Some reports are produced on a timely basis (e.g. monthly surveys), but their accuracy is 
limited,  mainly  due  to  manual  intervention  and  the  need  to  consolidate  information  from  many 
different regional databases. The authorities are committed to enhancing their monitoring capacity 
and tracking systems to better evaluate the effect of health reforms. By end-October 2013, a new 
framework  will  be  adopted  to  reduce  the  existing  fragmentation  and  streamline  financial 
management  and  accounting  systems  and  processes.  When  it  comes  to  public  hospitals,  this  is  a 
priority to enable them to operate on a cost allocation basis, ensuring full recovery for the state of 
the costs arising from the use of public hospitals  for the treatment of patients covered by private 
insurances. The authorities are also committed to the introduction of a case-based payment system 
for public hospitals. It intended that this system will commence on a shadow basis in 2013 ahead of 
the full implementation from 2014.  

17 The draft bill, published on 23 May 2013, provides for pay reduction for those earning over EUR 65,000, 
the parallel reduction in public service pensions, and other contingent savings measures in the event of non-
ratification of collective agreements. The legislation will be operational in time to secure the planned savings 
to the 2013 pay and pensions bill, i.e. by 1 July 2013. Detailed estimates of the budgetary impact of the HRA 
were not available by the cut-off date of the report. 
18 Such reform would also facilitate compliance with a new EU Directive aiming at cross-border recognition 
of prescriptions, which must be transposed by October 2013. 
19 The Health (Pricing and Supply of Medical Goods) Bill 2012, passed by both Houses of the Oireachtas on 
22 May 2013, would have seemed to be a natural place to pursue such reforms. 

20 

 
 
                                                      
Table 2: 2013 fiscal accounts 

Jan-Apr

Outturn

Profile

Outturn
vs
profile

Updated EC
forecasts

Full year
2013
Budget 

EC forecasts
vs
budget plans

Revenue

Tax revenue

Personal income tax
VAT
Corporation tax
Excise duties
Social contributions (PRSI & NTF)  1
Other taxes

Appropriations-in-Aid

Health current receipts
Education current receipts
Other current receipts
Capital A-in-As

Non-tax Revenue

Central Bank Surplus Income 
Bank Guarantee Fees
National Lottery Surplus
Dividends
Interest on contingent capital notes
Other

Capital receipts 2

Below-the-line financial receipts

Sale of CoCos in the Bank of Ireland
Sale of Irish Life Limited

Expenditure

Current voted (gross)
Social Protection
Health
Education
Other 

Current non-voted 2

Interest
Debt management expenses
Promissory Notes interest
EU Budget Contribution
ELG claim cost (IBRC liquidation)
Other non-voted (ex-SF)

Capital expenditure

Exchequer capital funding (gross)
FEOGA
Other

Below-the-line financial transfers
Promissory Notes principal  3
Loans to Insurance Compensation Fund
ESM capital payment

15 921

15 583

13415
5044
3476
423
1406
2471
597

1141
373
179
562
27

573
0
418
70
5
47
33

793

1010
1010

22 666

16985
6702
4734
2833
2716

5058
3295
46
0
700
934
83

624
595
0
29

409
0
154
255

13418
5102
3581
302
1450
2466
517

951

407
0
307
70
0
0
30

807

22 412

17023

4670
3342
49
493
697

89

719
687
0
32

2 976
2567
154
255

Exchequer balance 3

-6 144

-9 805

Below-the-line financial transfers
Below-the-line financial receipts
Local government sector
Promissory Notes interest accrual adjustment
Accrual adjustments and other below-the-line operations

General government balance 4

% of GDP

338

-3
-58
-105
121
-44
5
80

190

166
0
111
0
5
47
3

-14

1010
1010

254

-38

388
-47
-3
-493
3
934
-6

-95
-92
0
-3

-2567
-2567
0
0

3 661

EUR million

53 428

52 887

541

45370
15860
10560
4135
4920
7420
2475

3787
1460
670
1323
334

2360
1040
433
220
254
300
113

1370

45690
15960
10560
4255
5020
7420
2475

3763
1457
650
1322
335

2605
1148
583
220
294
247
113

1370

2310
1010
1300

320
100
0
120
100
0
0

-23
-3
-20
-1
1

245
108
150
0
40
-53
0

0

2310
1010
1300

66 268

64 926

1 342

51146
20233
13624
8456
8833

10843
7615
163
13
1694
1117
241

4279
3435
800
44

794
12
272
510

51068
20246
13627
8514
8681

9579
7225
163
506
1444

241

4279
3435
800
44

3361
2579
272
510

-11 323

-15 400

794
-2310
0
-213
458

3361

0
-1382
775

-12 594
-7.5

-12 645
-7.5

78
-13
-2
-59
152

1264
390
0
-493
250
1117
0

0
0
0
0

-2567
-2567
0
0

4076

-2567
-2310
0
1169
-317

51

Sources: End-April 2013 Exchequer statement; April 2013 EDP returns; 2013 Stability Programme; 2013 budget and Commission Services estimates
Notes:
1 Pay Related Social Insurance (PRSI) is a social contribution. National Training Fund (NTF) contribution largely consists of Training Levy, which is direct taxation.
2 Excludes Sinking Fund transfer from current to capital account and loan/repayment to/from the Social Insurance Fund which are the Exchequer deficit neutral.
3 In February 2013 all promissory notes in IBRC were exchanged for government bonds. This operation is estimated to reduce accrual interest expenditure by
   EUR 1 billion in 2013, partly offset by one-off ELG claim cost of EUR 1.1 billion.
   Remaining promissory notes in EBS will be repaid overtime (EUR 25 million annual payment including principle and interest).
4 The government balance excludes one-off deficit-increasing financial sector measures.

The budgetary outlook through 2015 is consistent with programme understandings and the 
EDP recommendations, but greater clarity on the actual measures underpinning the planned 
consolidation  would  enhance  its  credibility.  The  2013  Stability  Programme  published  at  end 
April  2013  (Box  1)  presents  lower  fiscal  deficits  in  2014  and  2015  than  the  ceilings  set  in  the 
December 2010 EDP recommendation ( 

21 

 
 
 
 
Table  3),  reflecting  inter  alia  the  gains  generated  by  the  promissory  note  operation.20,21  More 
explicit  commitment  and  clarity  on  the  specific  budgetary  measures  for  the  outer  years  of  the 
programme would enhance the credibility of the fiscal adjustment path.  

Significant  progress  has  been  made  to  align  the  national  budgetary  framework  to  the  EU 
economic governance rules. In particular, and reflecting extensive discussions with EC staff, the 
authorities  have  agreed  to  progress  and,  if  necessary,  amend  the  Ministers  and  Secretaries 
legislation (which establishes the legal basis for the already operational ceilings on aggregate and 
departmental  expenditure),  so  as  to  ensure  that  they  are  both  binding  and  consistent  with  the 
expenditure  benchmark  under  the  Stability  and  Growth  Pact.  Moreover,  they  are  revising  the 
budgetary process in line with the new "two-pack" requirements,22 e.g. as regards the publication of 
the annual budget, which will be brought forward to before October 15;23 and the conferral to the 
Irish  Fiscal  Advisory  Council  of  the  task  to  independently  endorse  the  macro  forecasts 
underpinning the Budget (legislation to this effect is being prepared). 

Box 1: Ireland's 2013 Stability Programme 

Ireland  submitted  its  2013  Stability  Programme  (SP)  to  the  European  Commission  on  30  April 
2013.    Over  the  programme  period (2014-2016),  the projected  general  government  deficit,  net  of 
financial  sector  support  measures,  is  within  the  deficit  ceilings  set  out  in  the  Council 
recommendation  issued  under  the  Excessive  Deficit  Procedure  (EDP).24  The  programme  restates 
the  commitment  to  the  fiscal  adjustment  presented  in  the  November  2012  Medium-Term  Fiscal 
Statement of EUR 3.1 bn (1.8% of GDP) in 2014 and EUR 2 bn (1.1% of GDP) in 2015, as well as 
demonstrates  that  savings  from  the  replacement  of  the  promissory  notes  with  longer-dated 
government bonds are used to accelerate debt reduction. Taking into account revisions of potential 
output  growth  and  revenue  developments  as  compared  to  the  standard  budgetary  elasticity,  the 
annual average adjustment in the structural balance is estimated at around 2 % of GDP over period 
2011-15. This is consistent with the structural adjustment recommended by the Council. 

The Irish Fiscal Advisory Council is established and active. The national fiscal framework has been 
strengthened  by  the  Fiscal  Responsibility  Act.  The  already  operational  multi-annual  expenditure 
ceilings  will  be  soon  put  on  statutory  basis.  A  new  single  pension  scheme  for  the  public  service 
employees  has  been  introduced  with  pensions  now  calculated  on  the  basis  of  career  average 
earnings, and the minimum pension age increased to 66 years initially and to 68 years by 2028, in 
line  with  the  state  pension  age  increase.  Long-term  costs  of  the  aging  population  are  high  as 
compared to the EU average and further pension system reforms are necessary. 

The 2013 SP updates Ireland's MTO to a balanced budget in structural terms (previously the MTO 
for Ireland was set at a deficit of 0.5% of GDP). The 2013 SP also includes the path towards the 

20  The  EDP  deficit  ceilings  are  7.5%,  5.1%  and  2.9%  of  GDP  in  2013,  2014  and  2015,  respectively.  The 
deficits  communicated  under  the  stability  programme  for  the  same  years  are  of  7.4%,  4.3%  and  2.2%  of 
GDP.  A  faster  deficit  reduction  would  be  in  line  with  the  reference  in  the  EDP  recommendation  to  "seize 
opportunities […] to accelerate reducing the gross debt ratio towards the 60 % of GDP reference value". 
21 The Irish Fiscal Advisory Council also supports the Government adhering to its planned fiscal adjustments 
of EUR 5.1 billion in 2014 and 2015, reducing the fiscal deficit to around 2% of GDP by 2015 
22 Regulation (EU) No 473/2013 and Regulation (EU) No 472/2013 
23 The plan is for the corresponding Finance Bill to complete Parliamentary consideration in December. The 
detailed Estimates for Public Services would also be submitted in December. 

22 

 
 
 
 
                                                      
MTO  beyond  the  programme  period,  i.e.  beyond  2016.  In  particular,  the  MTO  is  expected  to  be 
achieved by 2018 when the structural budget surplus is estimated at 0.2% of GDP and is projected 
to improve further to 1.2% in 2019. 

After the correction of the excessive deficit in 2015, the structural deficit is projected to be reduced 
by 0.6 % of GDP in 2016 and 1% in 2017 and 2018. This is in line with the provisions of the SGP, 
which call for adjustment above the benchmark minimum annual improvement of 0.5 % of GDP 
for  countries  with  high  debt  or  pronounced  sustainability  risks.  However,  while  the  structural 
adjustment in 2017 and 2018 is appropriate, it could be more ambitious in 2016 in view of the high 
government debt level and the high risks to the long-term sustainability of public finances.25  

As to the expenditure benchmark, programme projections for 2016 and 2017 would seem to deviate 
from the respective provisions of the preventive arm of the Stability and Growth Pact (SGP) as the 
real rate of growth of expenditure net of discretionary revenue measures26 is expected to exceed the 
lower  reference  rate  of  -0.7%.  Moreover,  the  projected  adjustment  of  the  structural  deficit  is 
predicated on medium-term  growth assumption that exceeds the medium-term reference potential 
growth  rate  used  to  calculate  the  expenditure  benchmark.  Thus,  if  confirmed  by  actual 
developments, Ireland faces the risk of non-compliance with the preventive arm in the future.  

Subject  to  the  full  implementation  of  the  budgetary  strategy,  the  government  debt  is  projected  to 
decline  from  around  123%  of  GDP  in  2013  to  98%  of  GDP  in  2019.  This  assumes  a  projected 
pickup in economic growth and a reduction in the currently high precautionary cash balances. The 
debt reduction plan in the programme  exceeds the minimum linear structural adjustment required  
under  the SGP and would ensure sufficient progress towards compliance with the debt criterion in 
the 2016-19 transition period (see note 5 and 6 to  

Table 3).  

Figure  14:  Deficit  projections  and  EDP 
ceilings  

Figure  15:  Revenue  and  expenditure 
growth 

24http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/30_edps/104-07_council/2010-12-
07_ie_126-7_council_en.pdf  
25See http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2009-
10/02_technical_assessment/ie_2010-03-31_ta_en.pdf, and, for more recent estimates, Table V here: 
http://ec.europa.eu/europe2020/pdf/nd/swd2012_ireland_en.pdf  
26  The  expenditure  aggregate  also  excludes  interest  expenditure,  expenditure  on  EU  programmes  fully 
matched  by  EU  funds  revenue  and  non-discretionary  changes  in  unemploymetn  benefits,  while  annual 
expenditure on gross fixed capital formation is replaced by its 4-year average. 

23 

 
 
 
 
 
                                                                                                                                                                 
(% of GDP)

Revenue
Expenditure
of which:

- Primary expenditure
- Interest expenditure

10

% of GDP

General government deficit

EDP deficit ceilings

8

6

4

2

0

-2

2012

2013

2014

2015

2016

2017

2018

2019

Source:  Stability  programme,  Commission  services' 
calculations 

% change

6

4

2

0

-2

-4

-6

2013

2014

2015

2016

2017

2018

2019

Nominal GDP

Revenue

Revenue net of measures

Primary expenditure

Table 3: Budgetary projections of the stability programme 

2012
34.6
42.2

2013
35.0
42.5

2014
35.2
39.6

2015
35.3
37.5

2016
34.8
36.5

2017
34.5
35.8

2018
34.2
34.5

2019
33.9
33.1

38.5
3.7
-7.6
-3.9
0.4

37.6
4.9
-7.5
-2.6
-0.6

34.7
4.9
-4.4
0.5
-0.1

32.6
4.9
-2.2
2.7
0.0

31.7
4.8
-1.7
3.1
0.0

31.0
4.8
-1.2
3.6
0.0

29.7
4.8
-0.3
4.5
0.0

28.4
4.7
0.8
5.5
0.0

0.2

0.1

0.8

0.0

-1.8

-0.2

-1.2

-2.3

-0.2

-0.1

-4.3

-0.2

-7.1

-6.8

-1.6

-0.8

-0.70

-0.70

-0.84

-0.70

-0.84

-0.70

0.2
1.0

1.2
1.0

-2.3
1.9

-6.5
0.7

-7.2
0.5

-0.8
1.0

-1.8
0.6

-4.2
2.3

-1.1
n.r.
n.r.
n.r.

-6.4
n.r.
n.r.
n.r.

General government balance (GGB)
Primary balance
One-off and other temporary measures
Output gap1
Cyclically-adjusted balance1
Structural balance (SB)2
Change in SB
Expenditure benchmark
Applicable reference rate3
Deviation4 (% GDP)
Gap to the debt benchmark5
Minimum linear structural adjustment6
Additional required adjustment7
Notes:
1Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission services on the basis of the 
programme scenario using the commonly agreed methodology.
2Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
3 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached its MTO in year t. A 
lower  rate applies as long as the country is adjusting towards its MTO, including in year t.The reference rates applicable to 2014 onwards have been updated 
in 2013. 
4 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from the applicable 
reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed methodology. A positive sign 
implies that expenditure growth exceeds the applicable reference rate. 
5Not relevant for Member Sates that were subject to an EDP procedure in November 2011 and for a period of three years following the correction of the 
excessive deficit.
6Applicable only during the transition period of three years from the correction of the excessive deficit for EDP that were ongoing in November 2011.
7Defines the remaining annual structural adjustment over the transition period which ensures that - if followed - Member State will comply with the debt 
reduction benchmark at the end of the transition period, assuming that SP budgetary projections for the previous years are achieved.
Source :
Stability programme (SP); Commission services’ calculations.

-0.6
n.r.
0.0
-2.7

-0.2
n.r.
1.0
-0.9

-2.5
n.r.
n.r.
n.r.

-1.4
n.r.
n.r.
n.r.

0.4
n.r.
0.5
-0.4

0.2
n.r.
n.r.
n.r.

-0.70

0.65

Box 2: eHealth priorities remain key to structural improvements in health care  

Ensuring value for money in public health care in Ireland is essential if budgetary discipline is to be 
maintained  in  a  way  that  does  not  compromise  frontline  services.  In  addition  to  immediate 
measures  to  bring  wage  costs  under  control,  this  will  also  require  structural  reforms  to  the  way 

24 

 
 
 
 
 
 
 
 
 
healthcare is delivered. eHealth policies can play a major part in this structural change. 

A  cornerstone of  any  eHealth  strategy  must  be  a universal  system  of  individual  health identifiers 
(IHIs) for patients and healthcare professionals. As has been highlighted by Commission services in 
previous reports, such a system is in itself a significant means of achieving cost savings. Identifiers 
reduce the risk of duplication and medical error, and therefore improve operating efficiencies. But 
beyond this, IHIs are a first step in delivering: 

•  More rational financial systems, such as the Money Follows the Patient model.  

•  The  roll-out  of  a  full  system  of  ePrescription  (i.e.  electronic  prescribing  and  dispensing  of 
pharmaceuticals).  International  evidence  shows  that  ePrescription  is  a  crucial  means  of 
achieving  savings  on  volumes  of  pharmaceuticals,  because  it  facilitates  monitoring  of 
interactions  and  side  effects  and  allows  for  quick  and  rational  assessment  of  prescribing 
implementation  of  prescription  protocols  using  patient-level 
practices, 
longitudinal data.  

including 

the 

•  More ambitious aspects of eHealth such as online referrals and consultations, which will drive 
down prices by bolstering competition. Of course, patient safety considerations must be duly 
respected. 

As with other reform initiatives in the health sector, implementation of eHealth policies has been 
slow in Ireland. The development of the new eHealth strategy – a programme commitment for end-
Q2 2013 - is welcome, but must be sufficiently detailed and contain time bound elements that are 
delivered upon. Certain concrete steps in relation to the IHI – the key building block – have been 
agreed under the Programme, including a deadline (end-October 2013) for the introduction to the 
Oireachtas of the necessary legislation to establish IHIs on a statutory basis. 

Figure 16: The role of Individual Health Identifiers (IHI) in a functional eHealth system 

Considering  the  long  lag  for  a  full  identifier  system  to  be  operational,  a  comprehensive  effort  is 
necessary  to  use  and  improve  existing  ICT  systems  for  pharmaceutical  reimbursement  schemes 
(GMS,    PCRS,  etc.)  to  identify  and  eliminate  waste  and  to  create  greater  efficiencies.  Moreover, 
monitoring  and  reporting  systems  should  be  further  strengthened  by  streamlining  the  many 
information systems and tools in place to control healthcare services, some of which rely on manual 
data inputting and the consolidation of different and fragmented regional datasets.  

These reforms would also enable (and be further supported by) streamlining the hospital financial 
management and accounting systems, so that hospitals could operate on a cost allocation basis—a 
precondition  to  ensure  the  full  recovery  of  the  costs  to  the  State  arising  from  private  patient 
treatment carried out in public hospitals. 

25 

 
 
 
 
3.2  Financial sector policies  

Despite  the  significant  progress  made,  concerns  remain  regarding  the  quality  of  Irish  banks' 
assets. Appropriately, efforts to work through unsustainable mortgages are being accelerated, and 
provisioning  guidelines  updated.  The  reform  of  the  personal  insolvency  regime  is  due  to  become 
operational  in  the  next  few  weeks,  and  while  this  could  provide  much  needed  drive  to  deal  with 
debt overhang in households' balance sheets in a sustainable manner, it could also undermine debt 
payment  discipline,  especially  if  lack  of  adequate  resources  in  the  court  system  leads  to 
arrangements which are not sufficiently tailored to the effective capacity to repay of the individual 
borrower.  To  minimize  this  risk,  complementary  reforms  such  as  the  revised  code  of  conduct  for 
mortgage  arrears  and  the  removal  of  the  legislative  impediments  to  banks'  ability  to  recover 
collateral in defaulted mortgages need to be implemented in parallel. Finally, the bank stress test 
timeline  under  the  programme  has  been  adapted  in  light  of  the  evolving  calendar  of  the  next 
European  bank  diagnostic  exercises  in  the  lead-up  to  the  SSM.  The  additional  time  needs  to  be 
used to ensure that the Irish banks are in the strongest possible shape when the ECB fully assumes 
its supervisory role under the SSM, presently expected at some point in the first half of next year. 

The  large  stock  of  mortgage  arrears  remains  a  source  of  concern  and  risk  to  banks'  asset 
quality. At the end of 2012 there were almost 123,000 primary dwelling house (PDH) and buy-to-
let  (BTL)  mortgages  in  arrears  for  more  than  90  days,  representing  13%  of  the  total  mortgage 
books, with over 3% of all mortgages in arrears greater than two years. The provision of permanent 
restructurings  has  been  limited  so  far  with  less  than  10,000  (approximately  8%)  permanent 
restructurings in place for customers in arrears greater than 90 days at end 2012. 

The  recent  target-based  framework  appears  to  have  spurred  banks'  efforts  to  address 
mortgage  NPLs,  but  it  is  important  that  the  loan  modifications  are  sustainable.  The  banks 
report  they  are  making  good  progress  towards  the  recently  announced  mortgage  restructuring 
targets27  but  the  sustainability  of  the  modifications  is  essential.  To  tackle  this  issue  and  ensure 
consistency28  in  treatment  of  distressed  borrowers  the  authorities  will,  by  the  end  of  June,  issue 
guidance  to  the  banks  relating  to  sustainable  restructuring  arrangement.  The  assessment  of  the 
sustainability  of  a  proposed  restructuring  is  to  be  based  on  affordability  and  sustainability  of  the 
arrangement from both the borrower and the lender’s perspective. The lender must evaluate, on a 
case by case basis, the actual and prospective servicing capacity of the borrower in relation to all 
outstanding debts and the capital implications for the credit institutions in terms of their prudential 
responsibility to minimize losses. 

The target-based framework is now being developed for the distressed SME loan portfolios. 
The weakness in domestic demand continues to impact on asset quality in the SME loan portfolios 
and. at end 2012 25% of the domestically owned banks' SME/Corporate loan book was impaired. 
The  workout  of  this  loan  book  is  further  complicated  by  the  overhang  of  property  related  debt; 

27 The banks have to offer sustainable restructurings to 50% of their customers in arrears greater than 90 dpd 
by end 2013. See: http://www.centralbank.ie/press-area/press-
releases/documents/approach%20to%20mortage%20arrears%20resolution%20-.pdf 
28  One  example  of  inconsistent  treatment  across  banks  is  the  "split  mortgage",  which  involves  splitting  a 
distressed  mortgage  into  an  affordable  mortgage  and  a  "warehoused"  balance.  The  design  of  this  product 
varies  widely  across  banks,  particularly  with  regards  to  the  interest  charged  on  the  warehoused  balance 
ranging  from  0%  to  the  full  interest  rate  on  the  mortgage.  The  sustainability  of  a  solution  which  parks  a 
significant portion of a mortgage for a number of years incurring full interest is questionable. 

26 

 
 
                                                      
more than half of the total stock of outstanding SME lending (52%) is property related as opposed 
to  trade  related  lending.  Thus  this  sector  poses  a  comparable  threat  to  the  health  of  the  banks' 
balance  sheets  as  the  mortgages,  and  yet  efforts  to  deal  with  unsustainable  loans  to  SMEs  have 
lagged. Dealing resolutely with these arrears is also important to reduce the debt overhang in this 
key sector. Key performance indicators (KPIs) designed by the CBI, to track SME debt resolution 
have  been  established  and  the  banks  are  reporting  on  these  since  the  end  of  March.  Targets 
requiring the banks to complete a substantial share of durable restructuring arrangements for SME 
loans  in  arrears  in  2013  are  currently  being  finalized.  Given  the  complexities  of  connected 
borrowers  and  to  minimize  undue  adverse  effects  on  payment  discipline,  it  is  essential  that 
sustainable solutions are found on a case-by-case basis.29 

More needs to be done to address BTL arrears. At the end of 2012 there were over 24,000 BTL 
properties  in  arrears  greater  than  90  days  (about  1/3  of  which  were  in  arrears  for  more  than  2 
years), representing 27% of the total value of this loan book. The banks have begun to engage the 
services of rent receivers to directly collect the income from these loan assets. This approach has 
been successfully adopted by NAMA in relation to its portfolio of loan assets and has resulted in 
significant greater cash flow receipts from these assets.30 Given the volume of long dated arrears in 
the BTL sector the number of receivers appointed to date appears low. The appointment of a rent 
receiver is not without costs, as a court order has to be attained and the receiver's fees have also to 
be paid, but given the inefficiencies and lengthy delays of the repossession system in Ireland there 
are many cases where a rent receiver may be a preferable choice to repossession. Obviously as this 
option  is  increasingly  relied  upon,  a  functional  system  of  registration  and  notification  of  the 
appointment of rent receivers needs to be put in place to provide clarity for tenants. 

In light of these elevated NPLs, and of the expected increase in restructurings, the authorities 
have  updated  the  provisioning  guidelines  to  ensure  conservative  provisioning  across  the 
domestically owned banks.  A key objective is to provide greater clarity regarding the underlying 
health of the books e.g. by setting out the prudent criteria for a restructured loan to be classified as 
cured and the possibility for some of the provision to be released (importantly, under the updated 
guidelines,  a  loan  cannot  be  deemed  to  be  cured  until  there  has  been  payment  of  principal  and 
interest  for  at  least  one  year).  Furthermore,  to  promote  greater  consistency  of  provisioning 
treatment  across  institutions,  the  authorities  will  assess  the  banks'  provisioning  models  against 
benchmarks parameters.  

These  amendments  to  the  guidelines  are  welcome,  as  they  enhance  the  transparency  of  the 
banks'  provisioning  levels  while  ensuring  a  cautious  and  conservative  approach,  to  further 
strengthen  banks'  incentives  to  identify  sustainable  restructurings,  the  authorities  intend  to 
introduce  an  extra  layer  of  rules-based  provisioning  with  effect  from  1  January  2014.  For  banks' 
assets that are (i) more than 90 days in arrears and (ii) for which no sustainable restructuring has 
taken  place,  banks  would  be  allowed  to  use  a  valuation  based  on  the  expected  net  proceeds  of 
collateral disposal only (i.e. banks would no longer be allowed to incorporate assumed or expected 
future cash flows from other sources in the valuation of these assets, as may be the case currently).  

29  Although  some  banks  are  more  advanced  than  others  with  regards  to  the  appropriate  infrastructure  to 
durably address the arrears issue in this sector, consideration should be given to outsource this work where 
the necessary systems and trained staff are not in place. 
30  NAMA  have  indicated  at  the  time  of  transfer  the  banks  were  capturing  15%  of  income  from  the  assets 
under control of debtors and this figure is now in excess of 85%.  

27 

 
 
                                                      
Moreover, a robust review of the underlying quality of the banks' balance sheets is required 
prior to programme exit, to inform banks' provisioning and financial planning going forward and 
help  identify  and  remove  any  impediments  to  the  provision  of  credit.  In  line  with  the  evolving 
timeline  for  the  forthcoming  European  stress  test  in  the  context  of  the  ECB  fully  assuming  its 
supervisory role under the SSM, the timeline for such diagnostics under the programme has been 
adapted. Specifically, the assessment exercise of the Irish banks' will now be broken down into a 
series  of  diagnostics  in  preparation  of  the  full  stress  test,  in  accordance  with  the  new  EU 
methodology,  ahead  of  though  in  close  proximity  to  the  upcoming  SSM/EBA  exercises.  It  is 
envisaged that this exercise will be held in the first half of 2014.  

A key building block of the preparatory diagnostics will be a  comprehensive Balance  Sheet 
Assessment,  to be finalised by end-November 2013. This will provide greater clarity regarding 
the  underlying  quality  of  the  banks'  balance  sheet  and  the  appropriateness  of  their  risk-weighted 
asset  (RWA)  calculations  for  determining  regulatory  capital  requirements.    This  assessment  will 
consist of two elements: (i) an asset quality review, based on the updated Impairment Provisioning 
and Disclosure Guidelines of the CBI and (ii) a review of the appropriateness of RWA calculations, 
including sensitivity analysis to alternative assumptions and inputs. The first step will provide the 
supervisor  with  a  quantitative  assessment  of  impairment  provisions  and  a  review  of  the 
appropriateness  of  risk  classification  for  all  loan  portfolios.  The  results  will  be  communicated  to 
the banks to help inform their assessments of loan loss provisions and any mitigating actions. The 
methodology for the asset quality review will take into account progress in developing the relevant 
SSM methodology and will be agreed with the troika by end July 2013.  

This will be complemented by other work streams aimed at ensuring that the Irish banks are 
well  placed  for  the  SSM  entry  exercise.  The  authorities  will  assess  banks'  current  capital 
positions relative to the requirements under CRD IV/CRR, and their profitability outlook through a 
forward-looking  operating  profit  analysis  under  various  funding  costs  scenarios.  Options  to 
potentially  lower  the  funding  cost  of  the  banks'  tracker  books  in  order  to  enhance  the  banks' 
profitability  outlook  will  also  continue  to  be  explored.  This  set  of  comprehensive  measures  will 
increase  banks'  incentives  to  pursue  sustainable  solutions  for  problem  loans  and  provision  in  a 
prudent and conservative manner, and will also assist the banks with their financial planning. The 
process will also allow for the implementation by the authorities of specific mitigating actions prior 
to the European stress tests.  

Institutional  reform  is  being  advanced  to  deal  with  the  debt  overhangs  in  private  sector 
balance sheets:  

•  The personal insolvency system is on track to start accepting applications by end June 31 
The Insolvency Service Ireland32 (ISI) was officially launched on 18 April 2013 with the 
launch  of  its  website  and  the  publication  of  reasonable  standard  of  living  guidelines33, 
which will ensure consistency in the calculation of debtor's debt servicing capacity for all 

31  On  this  basis,  the  issuance  of  the  first  Debt  Relief  Notices  is  expected  during  July.  Given  the  longer 
timeframe involved for the Debt Settlement Arrangements and Personal Insolvency Arrangements processes, 
the first of these arrangements would not be expected to be completed before late September, early October 
2013. 
32 More information is avilable at:  http://www.isi.gov.ie/ 
33 Guidelines can be found here: http://www.isi.gov.ie/en/ISI/GuidelinesUnderSection23-
FINAL.pdf/Files/GuidelinesUnderSection23-FINAL.pdf 

28 

 
 
                                                      
personal  insolvency  applicants.  The  guidelines  provide  an  extensive  breakdown  of  the 
estimated costs of living for individuals and families in a broad range of scenarios. As they 
appear  to  be  lower  than  what  banks  are  currently  offered  as  part  of  their  long-term 
sustainable mortgage solutions, they do provide an incentive for the borrower to seek first a 
negotiated  agreement  with  the  bank  and  to  resort  to  the  Personal  Insolvency  route  only 
when all else fails. One concern remains that —given the expected level of applications34 
relative  to  the  current  number  of  bankruptcies  cases—the  system  might  quickly  run  into 
capacity constraints. The authorities will shortly appoint a cadre of specialist judges to deal 
specifically with personal insolvency cases. Any other necessary steps should be taken to 
ensure the court system is sufficiently resourced in a timely manner.  

•  A protocol to deal with the situation of multiple creditors and unsecured debt has been 
brokered by the CBI35 to facilitate resolution arrangements acceptable for both secured and 
unsecured creditors as well as for the individual consumer without the need to proceed to a 
full  Personal  Insolvency  Arrangement  (PIA)  or  bankruptcy.36  At  present,  many  debtors 
continue to prioritise unsecured debt over secured debt in order to maintain access to these 
credit  lines,  or  resort  to  borrowing  unsecured  even  after  being  offered  a  restructuring 
arrangement on the secured part of their debts. The pilot scheme is a welcome attempt to 
address the problem of unsustainable debts with multiple creditors, however the rejection 
of  the  pilot  by  the  Irish  League  of  Credit  Unions  (ILCU)  is  regrettable  considering  that 
approximately 1/3 of total unsecured debt (estimated at EUR 15 bn) is owed to the Credit 
Unions.  It  will  be  important  that  Credit  Unions  which  participate  in  the  pilot  represent  a 
cross-section  of  the  broader  population  of  credit  unions  to  ensure  the  pilot  examines  the 
case of a representative sample of borrowers. 

•  The  code  of  conduct  on  mortgage  arrears  is  being  revised  to  clarify  the  definition  of 
"contact"  and  "co-operating  borrower".  This  should  facilitate  pre-PIA  restructuring 
agreements between the bank and a borrower by providing greater certainty regarding the 
appropriate  terms  of  engagement  and  the  obligations  expected  of  both  sides.  The  troika 
considered that the code should also be modified to permit modifications of the interest rate 
setting  mechanism  when  these  are  advantageous  to  the  borrower  in  the  long  term  (e.g., 
moving  with  his/her  agreement  a  customer  from  a  tracker  to  an  alternative  mortgage 
product  as  part  of  a  wider  sustainable  solution).  This  possibility  is  only  envisaged  in  a 
limited number of cases, i.e. only where the alternative may be the loss of the family home. 

34 The Department of Justice have previously estimated that, in the first full year, some 15,000 applications 
can  be  expected  for  both  Debt  Settlement  Arrangements  and  Personal  Insolvency  Arrangements,  plus  a 
further  3,000  to  4,000  applications  for  Debt  Relief  Notices  and  some  3000  bankruptcy  applications.  This 
strong  interest  would  appear  to  be  borne  out  by  the  queries  to  the  ISI,  which  in  the  first  few  weeks  have 
exceeded 100 per day. This workload needs to be compared with the 30 bankruptcy adjudications in 2011. 
35The  pilot  is  for  a  3-month  period  with  a  sample  of  750  borrowers;  participation  by  the  banks  and  other 
creditors  is  voluntary.  The  framework  applies  to  cooperating  borrowers  under  the  CCMA  framework  with 
both secured and unsecured debt. It does not however apply in situations where there is a BTL or business-
http://www.centralbank.ie/press-area/press 
related 
releases/Pages/CentralBankAnnouncesPilotSchemeforConsumerMulti-DebtRestructuring.aspx 
36 Unsecured debt to multiple creditors is quite widespread in Ireland. A recent survey by the Money Advise 
and Budgeting Services (MABS) found that 86% of their clients had additional debts over and above their 
mortgages, with 50% having between 2 and 4 additional debts and 5% having 10 additional debts or more. 

available 

details 

here: 

debt. 

Full 

are 

29 

 
 
                                                      
Several pieces of important legislation will be enacted in the coming weeks, though progress 
on  the  introduction  of  a  credit  register  remains  slow.  The  Central  Bank  (Supervision  and 
Enforcement) Bill, strengthening the ability of the CBI to impose and supervise compliance with 
regulatory  requirements  and  to  undertake  timely  prudential  interventions,  and  the  Land  and 
Conveyancing  Law  Reform  Bill,  removing  unintended  constraints  on  banks'  ability  to  realise  the 
value  of  loan  collateral  in  certain  instances  while  providing  additional  new  safeguards  for  the 
family  home  in  repossessions  proceedings  are  both  set  to  be  enacted  by  the  end  of  the  current 
Parliamentary  session.  However,  limited  progress  has  been  made  on  the  introduction  of  a  credit 
register, and in fact the timeline envisaged for introduction has been further delayed since the last 
mission, with the authorities now intending to phase in the introduction of the credit register during 
2015/2016, from early 2014 previously (the legislation was published in 2012 and the introduction 
of  the  register  has  been  part  of  the  programme  since  inception).  The  limited  priority  that  the 
authorities  assign  to  this  important  reform  is  surprising,  considering  how  this  institutional  lacuna 
enabled the proliferation of multiple loans to the same borrower in the run up to the crisis,37 and 
considering  that  problems  with  prioritising  of  secured  loans  and  ensuring  the  stability  of  debt 
restructuring  plans  continue  to  occur  (see  above  the  discussion  on  arrears  in  multiple  creditors' 
settings).38 

3.3 

Structural reforms  

There  have  been  dramatic  structural  changes  in  the  labour  markets  over  the  past  few  years,  not 
only with the sharp increase in overall unemployment, but also through the development of rising 
skills  mismatches  and  the  surge  in  youth  unemployment.  Government  policies  to  address  these 
issues have rightly focused on putting in place activation policies, reforming vocational education 
and training and seeking to foster job-creation. Progress has not been sufficiently fast in light of 
the urgency and scale of the situation, however, and more needs to be done on these three fronts. 
Delays have also been experienced in some other priority areas for structural reforms, including 
regarding the legal services and water sectors. 

The  government  is  addressing  the  challenges  faced  by  the  labor  market  via  activation 
reforms  and  job  creation  initiatives.  The  authorities  continue  to  make  progress  with  the 
implementation  of  the  Pathways  to  Work  initiative,  which  seeks  to  establish  proper  activation 
mechanisms,  have  followed-up  on  their  Action  Plan  for  Jobs  strategy  with  an  updated  plan  for 
2013  released  in  February,  and  are  pressing  ahead  with  reforms  of  the  further  education  and 
training  (FET)  system.  The  pace  of  reforms  and  the  resources  mobilised,  however,  are  at  times 
insufficient given the scale and the urgency of the situation. 

The capacity to meaningfully engage with job-seekers remains short. Regular engagement on a 
one-to-one  basis  is  key  for  the  effectiveness  of  activation  services  and  to  the  provision  of 
meaningful support to job-seekers. There are, however, currently only around 300 case workers for 
over  400,000  claimants  on  the  Live  Register  and  the  Department  of  Social  Protection  (DSP) 

37  The  situation  reached  outright  extremes,  with  the  ten  largest  borrowers  whose  loans  were  transferred  to 
NAMA accounting for total debt of EUR16 bn (over 10% of GDP), but the problem was quite widespread. 
38  One  issue  appears  linked  to  the  reluctance  to  confirm  the  use  of  the  Personal  Public  Service  Number 
(PPSN)  as  unique  identifier,  akin  to  the  situation  in  the  health  sector.  In  contrast,  all  other  EU  countries 
operate with a strong unique identifier in place as part of their credit register systems. 

30 

 
 
                                                      
expects the number to increase only to 600 by end-2013 and perhaps up to 800 by end-2014.39 This 
increase is expected to be reached through redeployment of existing staff, many of whom do not 
necessarily  have  the  case-worker  qualifications  and  would  therefore  need  significant  training  of 
their own. 

Rapid  decisions  and  actions  on  the  possible  outsourcing  of  some  activation  services  are 
therefore needed. The DSP has considered the outsourcing of some activation services to private 
providers and engaged external consultants at the end of 2012 for advice on the possible options. 
The  analysis  of  options  and  decision-making  process  have  been  initiated  in  the  first  quarter  of 
2013, but progress has been slow. A decision at Cabinet level on whether to outsource (and, if so, 
how  and  to what  extent)  should  be  taken  during  the  second  quarter  of  2013. A  quick  decision  is 
called  for  and,  if  positive,  extensive  efforts  should  be  made  to  ensure  a  rapid  completion  of  the 
procurement process so as to provide the necessary support to jobseekers. 

Special  attention  needs  to  be  dedicated  to  re-skilling,  up-skilling  and  training,  in  particular 
for  the  long-term  unemployed  and  the  youth.  Structural  labour  market  developments  (see 
section 2) mean that efforts to improve the FET system and make it more attune to the needs of the 
labour market and of the unemployed are critical. The establishment of the SOLAS and Education 
and Training Boards (ETBs) should be a matter of priority. SOLAS, in turn, will need to rapidly 
develop a credible strategy to orient the provision of FET and ensure the delivery of high-quality 
and  relevant  programmes  by  the  ETBs,  in  full  consultation  with  relevant  stakeholders. 
Consideration should also be given to enhancing work-based apprenticeships in collaboration with 
the private sector. In addition, Ireland will have to ensure that it avails of all opportunities offered 
to support its youth under the EU's Youth Guarantee, to which both regions will be eligible. 

The level of service to unemployed across the country remains uneven. Intreo offices, essential 
for  the  provision  of  an  integrated  process  of  welfare  and  activation  assistance,  have  only  been 
opened  in  11  locations  so  far,  even  though  the  reforms  established  under  the  Pathways  to  Work 
apply equally nationwide. This means that most of the population does not benefit from the "one-
stop-shop"  facility  and  the  improved  activation  support  it  delivers.  The  authorities  have 
encountered difficulties in establishing Intreo offices as scheduled, and indicate that they are likely 
to  fall  short  of  their  target  of  43  by  end-2013.  All  recourses  should  be  considered  to  address  the 
planning, design and staff relocation issues that are generating these delays. 

Faster  action  is  also  required  to  reform  employment  support  schemes  to  increase  their 
effectiveness.  The  authorities  have  started  implementing  some  reforms  following  an  internal 
review  process  and  consultations  with  stakeholders  in  February  2013.  In  particular,  they  have 
initiated  a  pilot  programme  to  create  two  strands  for  the  community  employment  scheme:  one 
properly focused on activation and progression towards the regular labour market, and one aimed at 
providing support to local communities for the delivery of social services. They have also recently 
revised the recruitment protocols for community employment to eliminate self-referral and provide 
a  decision-making  role  to  case  officers.  Although  significant,  these  reforms  are  only  a  small 
component  of  the  wider  reforms  proposed  under  the  review  conducted  by  the  DSP.  Many  such 
reforms are left for further consultation and later decision, typically well into 2014. A greater sense 
of urgency in this reform process is warranted, and further consideration should also be given to a 

39  In  comparison,  Germany,  Sweden  and  the  United  Kingdom  have  ratios  of  case  workers  to  employees 
slightly below 1:100, while France has a ratio of around 1:140. 

31 

 
 
                                                      
more  fundamental  rethink  of  some  schemes  to  ensure  that  they  effectively  support  jobseekers  in 
returning to non-supported work (Box 3). 

Job creation efforts continue, but much hinges upon a broad economic recovery. Aside from 
measures  to  improve  the  overall  business  environment  and  promote  the  development  of  key 
industries, the Action Plan for Jobs 2013 includes the launch in July of the JobsPlus scheme that 
directly subsidises the recruitment of the long-term unemployed.  The scheme, which will replace 
the  PRSI  exemption  scheme,  is  subject  to  a  cap  of  2,500  recruitments.  It  will  therefore  have  a 
limited impact on job creation in the best of cases, and will be reviewed before a possible extension 
into  2014.  Overall,  the  impact  of  the  Action  Plan  for  Jobs  on  job  creation  is  unknown,  but  the 
authorities have committed to conduct a thorough evaluation of the 2012 and 2013 plans in order to 
guide further efforts into 2014. 

Box 3: Activation effectiveness of employment support schemes 

Ireland  has  established  a  range  of  employment  support/activation  schemes,  which  were  recently 
reviewed  from  a  conceptual  perspective.  Few  of  them,  however,  have  been  evaluated  from  a 
cost/efficiency  perspective,  i.e.  in  terms  of  the  extent  to  which  they  increase  the  ability  of  the 
unemployed to return to non-supported employment and the net benefits to the DSP. An exception 
is  the  recent  independent  evaluation  of  the  JobBridge  internship  scheme,  which  shows  broadly 
positive  outcomes  in  terms  of  the  relatively  high  transition  rates  from  internship  to  full-time 
employment, and in terms of net benefits to the DSP (gains through reduced social payments minus 
internship costs). 

The  JobBridge  evaluation  is  a  useful  first  step  towards  a  comprehensive  assessment  of  the 
activation  effectiveness  of  all  employment  schemes.  The  DSP  is  also  building  up  its  analytical 
toolkit by cross-referencing feeds from various datasets, including Live Register data and Central 
Records systems (employment and tax data). Although this remains work-in-progress, individual-
level  data  on  unemployment,  employment  and  activation  experiences  should  facilitate  the 
effectiveness  assessment.  Based  on  preliminary  data  made  available  by  the  DSP,  some  basic  and 
tentative findings emerge: 

•  The number of beneficiaries from employment support programmes has steadily increased 
from  an  average  of  around  51 000  in  2007  to  75 000  in  2012.  Community  Employment, 
which  serves  little  activation  purposes,  represented  about  30%  of  the  total  in  2012,  with 
another  12%  for  FÁS  training  programmes  and  31%  for  the  Back  to  Education  scheme. 
The  Back  to  Education,  Back  to  Work  and  JobBridge  schemes  represent  most  of  the 
increase in the placement in employment schemes between 2007 and 2012. 

•  Employment  support  schemes  appear  to  have  been  relatively  inefficient  in  enabling  the 
unemployed  to  return  to  non-supported  employment,  and  the  situation  has  seriously 
deteriorated  as  a  result  of  the  crisis.  However,  it  must  be  noted  that  employment  data  is 
incomplete  for  later  time  periods  due  to  lags  for  returns.  Exits  to  employment  have 
represented  around  11%  of  the  total  for  people  engaged  in  FÁS  training  courses  since 
2009,  down  from  around  22%  in  2006–200740.  Exits  to  employment  for  people 
participating  in  Back  to  Education  were  typically  around  20%  on  average  but  have 
declined since the beginning of the crisis. Exits to employment for people participating in 

40 These percentages do not take into account people for whom the "next event" after activation is unknown. 
Known "next events" include a return on the Live Register or participation in another employment support 
scheme. 

32 

 
 
 
                                                      
Community Employment have only declined moderately and are at around 18% of the total 
in the period 2008–2011. 

The preliminary data indicate that activation schemes, including those aimed at re-skilling and up-
skilling the unemployed, have not been very successful in returning people to regular employment. 
This assessment remains extremely partial and tentative, however, as the micro-level data presents 
significant  methodological  issues  that  still  have  to  be  resolved  by  the  DSP.  However,  it  does 
highlight the need to carefully assess the effectiveness of programmes in the future. 

Important  State  asset  sales  are  nearing  completion.  The  sale  of  Bord  Gáis  Energy  and  the 
Electricity  Supply  Board's  stake  in  two  overseas  power  plants  is  expected  to  be  completed  in 
coming quarters. Although the proceeds will accrue to the parent companies in the first instance, 
the programme gives room for Ireland to use up to half of them for reinvestment in projects of a 
commercial  nature  that  meet  ex-ante  cost/benefit  criteria  and  enhance  employment.  This  job-
creation opportunity should be used as long as viable projects can be identified and to complement 
efforts to promote public-private partnership projects in infrastructure. Such projects have gathered 
momentum recently with the award or publication of tenders for road, school and primary health 
care centre projects. The employment impact is likely to be very limited in 2013, however. 

The authorities intend to postpone the introduction of water charges to late 2014. While they 
remain  committed  to  and  have  continued  to  make  progress  on  the  implementation  of  the  wider 
process  of  reforming  the  water  sector,  they  intend  to  postpone  the  introduction  of  household 
charges  by  a  few  quarters  to  enable  a  sufficient  percentage  of  households  to  be  equipped  with 
meters.  This  would  avoid  a  situation  whereby  charges  may  be  perceived  as  unfairly  distributed 
between  metered  and  non-metered  households,  and  also  ensure  that  sufficient  metering  data  will 
have been collected to enable the determination of assessed charges on a reliable basis. They also 
believe  that  public  acceptance  of  charges,  and  therefore  the  success  of  the  reform,  will  be 
maximised  with  a  higher  proportion  of  metered  households  and  a  longer  time  gap  between  the 
introduction of the property tax and the phasing-in of water charges. In a statement to the Dáil, the 
Taoiseach indicated that water would be billed on a quarterly basis starting from Q4 2014 instead 
of end 2013/early 2014 as envisaged thus far under the programme. 

Postponing  the  introduction  of  water  charges  is  acceptable  inasmuch  as  the  wider  reform 
process continues apace. The delay should not materially affect the reform process as long as it 
remains limited.41 In addition, significant steps have been taken during the past quarter in view of 
the  progressive  transfer  of  responsibility  for  water  services  from  local  authorities  to  a  national 
utility. The Water Services Act 2013 was adopted on 20 March 2013, which formally establishes 
Irish Water as a 100% publicly-owned subsidiary of Bord Gáis Éireann, provides the legal basis for 
the  installation  of  meters,  eliminates  the  ban  on  charges  for  households  and  grants  interim 
regulatory  powers  to  the  Commission  for  Energy  Regulation  (CER).  In  turn,  the  tenders  for  the 
supply  of  meters  and  boundary  boxes  have  been  completed,  while  the  contracts  for  installation 

41 Irish Water is intended to be a commercial state-owned company with the majority of costs to be covered 
by  water  charges.  As  such,  it  would  be  classified  outside  the  general  government  sector.  A  delay  in  the 
introduction of charges could affect the statistical classification of the company, at least until such time when 
charges cover a sufficient proportion of costs. 

33 

 
 
 
                                                      
work are to be awarded in June. Irish Water reports that it will start rolling out installation in July, 
with an objective of about 27,000 meters per month on average.42 

Completing the reform process is essential for efficiency, competitiveness and a rational use 
of  water.  By  abolishing  water  charges  for  households  in  1997,  Ireland  eliminated  an  essential 
mechanism to ensure the efficient, rational and sustainable use and supply of a scarce and valuable 
resource.  Fragmentation  on  the  supply  side  has  led  to  inefficiencies  and  significant  charge 
differentials for non-domestic users, while the reliance on State funding for operating and capital 
expenditures  has  led  to  insufficient  investment  in  maintenance  and  new  infrastructure.  Local 
authorities  have  proved  extremely  inefficient  in  collecting  charges  on  non-domestic  users,  and 
Ireland  currently  experiences  staggering  41%  system  losses.  The  provision  of  water  supply  and 
treatment  services,  including  to  businesses,  has  exerted  therefore  a  significant  drag  on  public 
finances in spite of the insufficient level of investment in the sector (Figure 17).  

Key  measures  will  have  to  be  completed  by  end-2013  to  ensure  that  the  reform  process 
remains on track. It is critical that the authorities publish a comprehensive Water Services Bill by 
September 2013 as expected, so as to establish the new legal framework under which Irish Water 
will operate and charges will be set. It is also essential that the funding model for Irish Water be 
firmly  established  and  that  a  tentative  schedule  for  the  utility  to  be  mostly  self-funded  be 
determined. As part of this, the CER will soon need to start drawing ahead of public consultations 
in  early  2014  the  outline  of  future  water  charges  in  order  to  ensure  fairness,  affordability, 
efficiency, conservation and the recovery of costs. The authorities will also need to ensure that Irish 
Water is in a position to proceed with the installation of meters without undue hurdles imposed by 
local authorities. In addition, given that charges will in any case be introduced before the majority 
of households are metered, the CER will have to determine both metered and assessed charges. The 
coexistence  of  these  two  systems  of  charges  is  common  in  other  regions,  including  England, 
Scotland and Wales, and should not constitute a hurdle in Ireland either. 

42 The installation of meters to around 1 mn households is expected to take up to 3 years. 

34 

 
 
 
                                                      
Figure 17: water services, efficiency and cost indicators 

Local  authorities  are  poor  collectors  of  non-
domestic charges, which also vary greatly 

80

70

60

50

40

30

20

10

0

%

EUR per 
cubic meter

% of charges collected

EUR per cubic meters

3.2

2.8

2.4

2

1.6

1.2

0.8

0.4

0

System  losses  range  from  16.5%  at  best  to 
60.3% at worst, with an average of 40.8% 
70 %

60

50

40

30

20

10

0

Sources: Service indicators in local authorities and IBEC. 

Source: Service indicators in local authorities. 

General government spending on water services 
is large in spite of insufficient capital investment 

2500

2000

1500

1000

500

0

Million 
euros

%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
   Gross fixed capital formation

   Operating expenditure

Share of water in total public GFCF

16

14

12

10

8

6

4

2

0

Ireland  devotes  more  public  funds  to  water 
services  than  other  EU  countries  (spending  as 
% of GDP) 
1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

   Ireland
   France
   Germany
   Greece
   Italy
   Portugal

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source:  Eurostat,  Classification  of 
government database. 

the 

functions  of 

Source:  Eurostat,  Classification  of 
government database. 

the 

functions  of 

The process of reforming legal services has been unduly and frequently delayed and needs to 
come  to  fruition  rapidly.  The  Minister  for  Justice,  Equality  and  Defence  indicated  that 
amendments  to  the  Legal  Services  Regulation  Bill  would  be  completed  soon  and  made  publicly 
available before the Bill would be considered at Committee Stage from 10–12 July. Legal services 
reforms constitute a key component of the overall strategy to facilitate regaining competitiveness 
by  realigning  domestic  costs  to  costs  in  other  jurisdictions.  Until  this  reform  is  completed,  legal 
services  costs  will  remain  excessively  high,  having  for  the  most  part  failed  to  adjust  during  the 
crisis, unlike other sectors of the economy. Such high costs affect the competitiveness of the Irish 
economy as a whole (Box 4). 

Box 4: The high cost of legal services continues to cause problems 

Structural reforms are essential for boosting growth, increasing competitiveness and enhancing the 
prospects  for  job  creation,  but  often  involve  confronting  vested  interests.  While  overall  the  Irish 
economy has adjusted well since the onset of the crisis, the pace and scale of price adjustment in 
the non-traded sector has been uneven. This may be due in part to structural factors such as barriers 

35 

 
 
 
 
 
 
 
to  competition.  In particular,  the  cost of  legal  services has  not fallen  significantly  from  pre-crisis 
levels.  This  is  in  contrast  to  other  professional  services  for  which  the  underlying  cost  dynamics 
should be comparable, for example accountancy services. Here, prices have adjusted more in line 
with developments in the economy as a whole (Figure 18). 

Figure 18: Legal services costs in perspective 

Legal services remain costly while accountancy 
has  adjusted 
(indices, 
2006=100)                                                            

the  peak

since 

Legal costs for contract enforcement in IE are 
among the highest in the EU (% of the claim) 

130

120

110

100

90

80

70

60

50

Legal Services
Accountancy Services
CPI

Q
1

2
0
0
7

Q
3

2
0
0
7

Q
1

2
0
0
8

Q
3

2
0
0
8

Q
1

2
0
0
9

Q
3

2
0
0
9

Q
1

2
0
1
0

Q
3

2
0
1
0

Q
1

2
0
1
1

Q
3

2
0
1
1

Q
1

2
0
1
2

Q
3

2
0
1
2

30%

25%

20%

15%

10%

5%

0%

D
K

H
U

D
E

S
I

R
O

L
T

L
U

E
E

B
E

B
G

E
L

F
R

P
T

C
Y

P
L

F
I

E
S

C
Z

A
T

N
L

S
K

L
V

I

E U
K

I
T

S
E

E
U
-
2
7

Source: CSO (2006 = 100) 

  Source: Doing Business, World Bank Group, June 2012 

Studies  show  inefficiency  in  the  legal  system  impacts  on  the  economy.  High  legal  costs  feed 
through  to  higher  prices  for  goods  and  services,  and  therefore  have  important  implications  for 
competitiveness.  This  has  repeatedly  been  cited  by  the  Irish  Small  and  Medium  Enterprises 
Association (ISME), as a constraint on Irish businesses.43 In particular, costs may act as a barrier to 
small companies seeking redress for contract enforcement. Figure 18 shows that as a percentage of 
the claim, attorney fees in Ireland are among the highest in the EU-27.  

Since 2006, a number of significant barriers to competition in the supply of legal services in Ireland 
have  been  identified44,  including  in  areas  such  as  advertising,  training  and  the  formation  of  joint 
practices. In line with programme commitments, the Authorities introduced a new Legal Services 
Regulatory  Bill  in  late  2011  to  address  many  of  these  concerns.  However,  the  Bill  as  initiated 
encountered  vocal  criticism  from  the  legal  professions  and  did  not  advanced  despite  repeated 
commitments  by  the  Authorities  to  the  contrary.  After  19  months,  the  draft  bill  has  yet  to  be 
enacted. Amendments to address concerns around the independence from the executive of the new 
regulatory  authority  have  not  yet  been  made  available.  As  such  an  assessment  of  their  potential 
impact on competition is not possible. 

Given this lack of progress, and considering that other avenues of competitiveness improvements 
(such as wage containment) seem to be approaching their limit, addressing high legal costs has now 
become  an  important policy  challenge,  including  through the  timely  completion  of  the  remaining 
legislative  and  executive  steps  to  ensure  the  new  Legal  Services  Regulatory  Authority  is 
operational without any further delay. 

43 See ISME Press release (14/03/13) Cost Competitiveness must be Government Priority. Commission staff 
have also raised this issue in the Autumn 2012 Review. It should be recognised that the efficiency of the legal 
system can also be a factor in explaining high legal costs. Data from the World Bank indicates that Ireland 
was sixth worse in terms of the time taken to conclude legal procedures for contract enforcement. 
44 See The Competition Authority Competition in Professional Services: Solicitors and Barristers (2006) 

36 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                      
4. Financing issues 

Market sentiment towards Ireland has continued to improve, as attested by the strong demand 
of the 10-year bond issued in March (which had tightened by around 500bp in secondary markets 
in mid-May from 4.15% at issuance) and the steadily declining yield on the ongoing T-bill auctions 
with a three-month tenor (down to 0.129% as of mid-May).  

Plans are on-track to build a sizeable cash buffer by the end of the year. The authorities have 
already  completed  ¾  of  their  targeted  bond  issuance  of  EUR  10  bn  for  2013.  Together  with  the 
possibility of more regular issuance of sovereign bonds later in the year and the remaining planned 
disbursements  under  the  programme  (EUR  9.36  bn45),  this  would  allow  Ireland  to  accumulate  a 
cash buffer of approximately EUR 22.4 bn (Error! Reference source not found.)46 at end-2013 
which  should  be  sufficient  to  cover  total  financing  needs  for  the  following  12-15  months.,  The 
ample cash reserve serves as a prudent signal to investors as the Adjustment Programme reaches its 
conclusion.  

Table 4: Financing requirements 

2010
Dec

2011
Year

Q1

Q2

2012
Q3

Q4

Year

Q1

Q2

2013
Q3

Q4

Year

2010-2013
Total

5.4

2.5
0.0

0.0

0.0

0.0
0.0
0.0
0.0

0.5
0.0

18.4

4.3

6.9

1.7

3.5

16.4

3.7

3.9

0.3

3.3

11.2

51.4

9.7
4.8

6.3
5.6

-0.6
0.0

-0.7
-0.3

4.4
0.7

9.4
6.0

1.7
0.4

8.6
4.6

2.6
0.0

1.5
0.0

14.5
5.1

16.6

0.0

1.3

0.0

0.3

1.6

0.0

0.0

0.0

0.0

0.7

34.5
21.5
0.5
12.6

1.4
0.0

0.2

-0.9

10.5
6.2
1.1
3.2

0.4
0.0

4.4
2.8
0.2
1.5

3.4
3.1

0.0

3.7
2.3
0.5
0.9

6.5
5.1

0.5

2.6
1.0
0.7
0.9

1.9
0.0

-0.2

21.2
12.3
2.5
6.4

12.3
8.1

0.0

1.6
0.0
0.5
1.1

12.2
7.8

1.1

4.2
2.4
0.8
1.0

3.7
0.5

1.5

3.2
2.0
0.4
0.8

2.6
1.0

0.5

2.8
2.0
0.3
0.6

1.7
0.7

0.0

3.1

11.7
6.4
1.9
3.5

20.2
10.0

36.0
15.9

18.1

3.6

67.5
40.1
4.8
22.5

34.4
18.1

22.3

13.0

13.2

14.3

23.5

19.3

19.3

27.6

21.9

23.2

22.4

22.4

A. Exchequer cash deficit 1/

B. Debt redemption 2/

of which: long term bonds

C. Bank recapitalisation

D. Other Financing needs 3/

E. EU-IMF loan disbursement

EFSM/EFSF
Bilaterals 5/
IMF

F. Market Funding

of which: long term bonds

Memorandum item:

Cash balances, eop 

Notes:
1/ Includes promissory note payments 
2/ Includes long-term bonds, T-bills, commercial paper and others. The timing of the issuances is purely indicative and not reflecting the NTMA's intentions. 
3/ Include contingencies
4/ Includes Treasury cash reserves and NPRF assets
5/ UK, Sweden and Denmark.

The recently approved extension of EFSF/EFSM loan maturities will help restore full market 
access in the immediate post-programme period. At their meeting on 12 April 2013, Eurogroup 
and Ecofin Ministers agreed to lengthen the maturities of the EFSM and EFSF loans to Ireland and 
Portugal by a weighted average of 7 years, conditional—in the case of Ireland—on the successful 
completion of the 9th programme review (which was confirmed by the European Commission this 
past April). Between 2015 and 2019, loans from the EFSF and the EFSM totalling EUR 15.4 bn 

45  This  includes  both  yet-to-be-authorized  amount  (subject  to  positive  conclusion  of  current  and  last  two 
reviews), as well as amounts that have been authorized but not yet disbursed. As to the latter, EUR 1.6 bn 
EFSF  disbursement  authorized  in  April  upon  the  completion  of  the  9th  review  is  presently  expected  to  be 
borrowed by Ireland in June, while the EUR 0.8 bn EFSF disbursement from the 8th review was borrowed by 
Ireland on May 2, 2013.  
46  The  financing  requirements  for  the  year  2013  in  Error!  Reference  source  not  found.  also  provide  a 
contingency for potential unforeseen payments. 

37 

 
 
 
 
                                                      
would have matured based on the original repayment schedule. The extension of maturities will be 
especially targeted to reduce the redemptions of EFSF/EFSM loans in this period by shifting them 
beyond  2020,  while  avoiding  redemption  humps  after  2020.  The  7-year  average  extension  of 
EFSM  and  EFSF  loans  increases  the  weighted  average  maturity  of  Ireland's  total  public  debt  to 
12.4 years, which compares very favourably to the corresponding average debt maturity in all euro 
area countries (7.3 years) notwithstanding the heavy schedule of bond maturities which Ireland has 
in the period 2016 to 2020.47  

The successful completion of this review would trigger a disbursement of EUR 1 bn from the 
EFSF. The IMF will also disburse EUR 1 bn and the UK EUR 0.5 bn under its bilateral loan. This 
will bring the released or approved disbursements so far to EUR 62.7 bn, representing some 92.9% 
of the total international assistance of EUR 67.5 bn available under the programme.  

Figure 19: Debt repayment schedule 

Before maturity extension                                           After maturity extension 

30

€ bn

30

€ bn

Irish bonds

IMF

EFSM/EFSF

Bilateral loans

25

20

15

10

5

0

Irish bonds

IMF

EFSM/EFSF

Bilateral loans

25

20

15

10

5

0

2013

2014

2015

2016

2017

2018

2019

2020

2013

2014

2015

2016

2017

2018

2019

2020

Source: Commission Services 

Source: Commission Services 

5. Risks 

Despite the considerable progress achieved under the programme so far, as highlighted in previous 
reports  important  challenges  and  risks  remain,  which  require  close  monitoring  and  determined 
policy action: 

o  With  a  2013  government  deficit  estimated  by  Commission  services  at  7.5%  of  GDP 
(primary deficit of 2.6% of GDP), fiscal consolidation requirements remain considerable. 
The initial rejection of the Croke Park II agreement, followed by a more recent agreement 
with trade unions (yet to be put into practice), underscores the need for continued vigilance 

47 Public debt here refers to outstanding central government bonds and official IMF plus EFSF/EFSM/ESM 
loans  for  applicable  countries.  The  Irish  debt  stock  includes  EUR  25  billion  of  long  term  bonds  with 
maturities between 25 and 40 years issued to the CB to replace the IBRC Promissory Note. In fact, Ireland's 
public debt has the second-longest average maturity in the euro area, after Greece (15.2 years), and only the 
programme countries (Greece, Portugal and Ireland) have average debt maturities over 8 years.  

38 

 
 
 
 
                                                      
with respect  to correcting fiscal imbalances. . This  needs to be carefully managed by the 
authorities, in particular by ensuring that the adjustment is and is perceived as equitable. 

o  Banks'  asset  quality  remains  a  source  of  uncertainty.  A  more  dragged-out  process  of 
discovery/capital  assessment  could  stymie  banks'  efforts  to  reduce  reliance  on  system 
funding, which could undermine their capacity/willingness to extend new loans in support 
of the recovery. Weak profitability can have a similarly limiting effect.  

o  The  ongoing  reforms  in  the  mortgage  market  might  result  in  diminished  debt  repayment 
discipline.  It  is  essential  that  adequate  protection  is  offered  to  cooperating  distressed 
debtors so that they can work out a solution with their creditors. But, even after the planned 
reforms of the legal framework for repossessions and of the code of conduct on mortgage 
arrears, undue incentives may remain for strategic non-payment/default. This would harm 
the functioning of credit markets for the medium to long term and thus impede the efficient 
allocation of savings.  

o  The  modification  of  the  timeline  for  a  meaningful  assessment  of  bank  capital  under  the 
programme in the wake of the evolving calendar of the EBA/SSM stress testing exercise is 
primarily  meant  to  ensure  consistency  across  successive  supervisory  steps  and  in  turn  to 
safeguard their credibility. The new staggered approach is to be taken as an opportunity to 
well prepare the various individual steps. Any attempt to defer or to weaken the individual 
elements  of  the  process  would  undermine  the  very  reason  for  modifying  the  original 
calendar of stress testing of banks.  

39 

 
 
List of abbreviations 

Consumer Price Index 

Central Bank of Ireland 

AIB  Allied Irish Bank 
BOI  Bank of Ireland 
BGE  Bord Gáis Energy 
BTL  Buy-to-Let 
CBI 
CER  Commission for Energy Regulation 
CPI 
CSO  Central Statistics Office 
dpd 
Days Past Due 
EBA  European Banking Authority 
European Commission 
EC 
ECB  European Central Bank 
EDP  Excessive Deficit Procedure 
EFSF  European Financial Stability Fund 
EFSM  European Financial Stabilisation Mechanism 
ELG  Eligible Liabilities Guarantee 
ETB  Education and Training Board 
GDP  Gross Domestic Product 
GNP  Gross National Product 
GP 
General Practitioner 
GVA  Gross Value-Added 
HICP  Harmonised Indices of Consumer Prices 
HSE  Health Service Executive 
IBEC 
IBRC 
IMF 
LTV  Loan-to-Value ratio 
ma 
MEFP  Memorandum of Economic and Financial Polities 
MOU  Memorandum of Understanding 
MTFS  Medium Term Financial Statement 
NAMA National Asset Management Agency 
NBFI  Non-Bank Financial Intermediary 
NFC  Non-Financial Corporation 
PDH  Primary dwelling house 
PCAR  Prudential Capital Assessment Review 
PTSB  Permanent TSB 
qoq 
REER  Real Effective Exchange Rate 
sa 
Seasonally Adjusted 
SME  Small and Medium Enterprise 
SSM  Single Supervisory Mechanism 
yoy 
WHO  World Health Organisation 

Irish Business and Employers' Confederation 
Irish Bank Resolution Corporation 
International Monetary Fund 

Quarter-on-quarter 

Moving average 

Year-on-year 

40 

 
 
 
Annex 1: Programme Implementation 

Compliance Monitor for Q1 2013  

The conditions below are from the 8th update of the Memorandum of Understanding on Specific Economic 
Policy Conditionality (MoU). 

Status and COM assessment 

Permanent conditions 

PC.1 
i.  Rigorously implement fiscal policy 

consistent with the requirements of the 
excessive deficit procedure. In particular, the 
Department of Finance and the Department 
of Public Expenditure and Reform will 
continue to ensure effective tax collection 
and tight supervision of expenditure 
commitments by the line departments to 
ensure that the primary deficit target in cash 
(see Table 1 of MEFP and the Technical 
Memorandum of Understanding, TMU) 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.  Any additional unplanned revenues must be 

allocated to debt reduction. 

i. Observed 
EDP deficit ceilings were met with ample margin 
in 2011 and 2012 (in particular, based on the April 
2013  EDP  notification,  the  2012  deficit  outturn 
was 7.6% of GDP, against a programme ceiling of 
8.6% of GDP, and better than the estimate as per 
the  9th  review,  i.e.  7.7%  of  GDP,  due  to  small 
changes in cash-accrual adjustments).  
Commission  services  estimate  the  2013  deficit 
(7.5%  of  GDP)  in  line  with  the  2013  EDP  and 
programme ceiling.  
is  being 
Supervision  of  health  expenditure 
enhanced 
through  dedicated  data  provision 
requirements established in the 9th review, i.e.  (i) 
Report  on  implementation  of  budgetary  measures 
in  the  health  sector;  (ii)  report  comparing  (a) 
health expenditure by main service areas, (b) pay 
and  non-pay  element  of  current  expenditure,  and 
(c)  capital  expenditure  and  income  collected  , 
against  the  monthly  targets;  and  (iii)  report  on 
pharmaceutical  prescriptions  and  expenditure. 
Data  availability  is  not  always  complete,  but 
efforts are being made to improve it.  

ii. Revenue overperformance has been saved (i.e., 
the  deficit  has  undershoot  the  programme  ceiling 
by an amount equal to or greater than the revenue 
overperformance),  although  some  expenditure 
have  been  allowed 
to  exceed  programmed 
amounts (for example, on unemployment benefits 
and health). Overall expenditure have been in line 
with  original  programme  projections  because  of 
the  windfall  savings  on  the  interest  bill  including 
resulting from EU policy decisions. 
It needs to be kept in mind that it has been agreed 
that some proceeds from identified asset sales will 
be  spendable  on  growth-enhancing  projects  (see 
PC.3 below). 

iii.  Moreover, the nominal value of Social 

Welfare pensions will not be increased.  

iii. Observed 

PC.2 
Consult  ex-ante  with  the  European  Commission, 
the  ECB  and  the  IMF on  the  adoption  of  policies 
that are not included in this Memorandum but that 
could  have  a  material  impact  on  the  achievement 
of programme objectives. 

Broadly observed (in some  cases the consultation 
period before announcement has been very short).  

41 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the 

PC.3 
Use  at  least  half  of  the  proceeds  from  state  asset 
sales  for  eventual  debt  reduction  while  also 
reinvesting 
realised 
remainder  of 
proceeds  in  projects  which  are  of  a  commercial 
nature, meet ex-ante cost benefit criteria, enhance 
employment  and  preserve 
fiscal 
sustainability,  including  Programme  and  EDP 
fiscal targets. 

term 

long 

total 

Not  applicable  (there  have  been  no  privatisation 
proceeds so far).  

PC.4 
Continuously monitor financial markets to exploit 
opportunities  to  return  to  commercial  funding  as 
soon as possible.  

Observed 

through 

PC.5 
Ensure  that  activation  services  are  enhanced,  to 
tackle  the  high  and  persistent  rate  of  long-term 
unemployment.  In  particular,  the  Department  of 
Social  Protection  will  take  steps  to  improve  the 
ratio of vacancies filled off the live register, focus 
on re-training the unemployed to reduce the risk of 
long-term  unemployment  and  ensure  appropriate 
implementation  of 
the 
incentives 
sanctions. Generally, the government will advance 
its  plans  to  introduce  new  activation  measures 
building  on  Pathways  to  Work  (the  government's 
strategy  for  institutional  reform  of  the  activation 
system). 
PC.6 
Ensure 
the 
competition law framework will be granted unless 
they  are  entirely  consistent  with  the  goals  of  the 
EU/IMF  Programme  and 
the 
economy. 

further  exemptions 

the  needs  of 

that  no 

to 

PC.7 
Ensure that NAMA:  
(i)  maintains  the  highest  standards  of  governance 
with  appropriate  accountability  and  transparency 
arrangements;  

(ii) reduces the costs of its operations; and  

(iii) constructively contributes to the restoration of 
the Irish property market in the course of meeting 
the  asset  disposal 
targets  established  and 
including 
monitored  by 
redemption  of  €7.5  bn  worth  of  senior  bonds  by 
end 2013. 

the  NAMA  Board, 

requirements, 

Reforms of activation policies are on-going and in 
line  with  programme 
though 
progress has at times been slower than hoped for. 
A  key  challenge  appears  to  be  ensuring  proper 
mobilisation of resources for engagement with the 
long-term  unemployed  and  for  adequate  reforms 
to further education and training system (see main 
report). 

Observed 

(i)  Detailed  set  of  annual  accounts,  an  Annual 
Statement  and  quarterly  reports  on  NAMA 
activities  submitted  to  Minister  for  Finance  and 
laid before both Houses of the Oireachtas. 

(ii)  Administrative  expenses  fell  slightly  in  2012 
to EUR 119 mn (2011: EUR 128 mn). 

includes 

in  Dublin  city  centre, 

investment  plan  which 

(iii)    NAMA  is  progressing  with  its  EUR  2  bn 
capital 
the 
completion  of  properties  which  are  currently 
under development and the development of certain 
land,  particularly 
in 
anticipation of future demand. Total 2012 disposal 
receipts  amounted  to  EUR  2.8  bn  resulting  in 
receipts  of  EUR  6.8  bn  since  inception.  NAMA 
has  redeemed  EUR4.75  bn  in  NAMA  senior 
bonds  (63%  of  end  2013 
target)  and  has 
reaffirmed the commitment to redeem EUR7.5 bn 
by end 2013.  

42 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
PC.8 
Ensure  that  the  restructuring  of  credit  unions,  via 
the  Credit  Union  Restructuring  Board,  will 
underpin  the  financial  stability  and  long  term 
sustainability of the sector.  

(i) The restructuring will be completed in as short 
a  timeframe  as  possible  under  a  clear  plan 
identifying 
for 
unions 
restructuring, subject to Central Bank approval.  

appropriate 

credit 

(ii) As regards funding, the first call should be on 
the  credit  unions  concerned  or  the  sector  as  a 
whole;  any  Exchequer 
should  be 
minimised, should be provided only in the context 
of a restructuring plan in compliance with EU state 
aid rules, and should be recouped from the sector 
over time.  

funding 

(iii) In parallel, the Central Bank will continue its 
inspections to determine the financial condition of 
the  weakest  credit  unions,  and  may  engage  its 
resolution  powers  drawing  on  Resolution  Fund 
resources. 
PC.9 
Ensure  continued  compliance  with  the  minimum 
capital  ratio  of  10.5  percent  for  all  PCAR  banks 
(AIB, BOI, and PTSB).  
PC.10 
Continue  to  strengthen  the  fiscal  framework  and 
reporting in line with that of the EU.  

these 
Authorities'  efforts  continue 
objectives  and  in  line  with  the  principles  in  (i), 
(ii), and (iii). 

towards 

(i) The Credit Union Restructuring Board (ReBo) 
was put on a statutory footing on 1 January 2013 
and shall remain in place until 31 December 2015. 
Its role is to facilitate and support the restructuring 
of  the  Credit  Union  Sector  and  comprises  of 
representatives  from  the  Credit  Union  sector,  the 
Central  Bank  of  Ireland,  the  Department  of 
Finance  and  a  number  of  independent  members. 
ReBo  has  established  its  operational  team  which 
will be engaging with credit unions in the coming 
months. 

funding 

(ii)  Statutory  arrangements  in  place  to  ensure  all 
Exchequer 
from  CU 
is 
concerned/sector; compliance with State Aid rules 
provided for in Credit Union & Co-operation with 
Overseas Regulators Act 2012. 

recouped 

(iii) Statutory provisions made in Credit Union & 
Co-operation  with  Overseas  Regulators  Act  2012 
and  the  Central  Bank  and  Credit  Institutions 
Resolution Act 2011. 

Observed 

Two-pack  implementation  on  track  (in  particular, 
as  regards  2014  Budget  calendar,  which  is  being 
brought forward).  

As  regards  the  multi-year  expenditure  ceilings, 
under  the  current  Irish  legislative  proposal  these 
would cover a somewhat different aggregate than 
defined by the SGP's "expenditure benchmark (see 
Art.  5  of  Council  Regulation  (EC)  No  1466/97). 
Current  provisions  are  based  on  administrative 
circulars  implementing  details  of  the  ceilings, 
giving  considerable 
leeway  for  discretionary 
changes to the framework.   

The  authorities  have  undertaken  to  ensure  full 
consistency  and 
the 
expenditure  benchmark  with  required  legislative 
amendments  if  necessary  by  June  2013  (see  9th 
update of the MOU) 

robust  applicability  of 

facilitate 

PC.11 
To 
the 
authorities will provide the European Commission, 
the ECB and the IMF with: 

programme  monitoring, 

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-    All information required to monitor 
programme 
during 
progress 
implementation  and  to  track  the 
economic and financial situation.  

Observed 

-      A compliance report on the 

Observed 

fulfilment of the conditionality 
prior to the release of the 
instalments.  

-      Reliable  and  regular  availability  of 
budgetary  and  other  data  as 
detailed in Annex 1. 

Observed 

the  staff  of 

Q1: financial sector reform 
The  authorities  will  provide  the  staff  of  the 
European  Commission,  the  ECB  and  the  IMF  a 
review  of  developments  in  the  PCAR  banks 
relative  to  PCAR  2011.  Overall  results  of  this 
work will be published by end February 2013. The 
authorities  will  agree  with 
the 
European  Commission,  the  ECB  and  the  IMF  on 
the specific details of the review.  
The  authorities,  in  consultation  with  the  staff  of 
the European Commission, the IMF, and the ECB, 
will  assess  banks'  deleveraging  based  on  the 
existing nominal targets for disposal and run-off of 
non-core  assets  in  line  with  the  2011  Financial 
Measures  Programme.  Fire  sales  of  assets  will  be 
avoided,  as  will  any  excessive  deleveraging  of 
core  portfolios,  so  as  not  to  impair  the  flow  of 
credit to the domestic economy. 
The authorities will provide staff of the European 
Commission,  the  IMF,  and  the  ECB  with  a 
detailed assessment of banks' progress towards the 
relevant Basel III requirements using the advanced 
monitoring framework. 
The authorities will provide staff of the European 
Commission,  the  IMF,  and  the  ECB  with  their 
assessment  of  banks'  performance  with  the  work-
out  of  their  non-performing  mortgage  and  SME 
portfolios  in  accordance  with  the  agreed  key 
performance 
indicators.  The  authorities  will 
monitor  each  PCAR  bank’s  performance  relative 
to  already-defined  key  performance  indicators  for 
progress  in  resolving  problem  loans,  and  also 
against  bank  specific  targets  for  reviewing  new 
and existing individual arrears cases. 
The  authorities  will  publish  banks’  reported  data 
on  loan  modifications,  to  permit  analysis  of  the 
effectiveness  of  alternative  resolution  approaches 
in improving debt service performance. 
The  authorities  will  establish  by  end-March  a 
public  target  requiring  the  principal  mortgage 
banks  to  offer  durable  restructuring  arrangements 
for  a  substantial  share of  problem  mortgage  loans 
during 2013. 
Having  secured  adequate  protections  for  debtors' 
principal  private  residence  through  the  enactment 
of the Personal Insolvency Bill, the authorities will 
issues 
introduce 
identified  by  case  law  in  the  2009  Land  and 

remedying 

legislation 

the 

Observed (small delay of publication, which took 
place on 1st March 2013) 

Done during the 10th review mission 

Observed (report received on 26 March 2013).  

Observed (report received on 27 March 2013).   

Observed  (the  Q4  2012  mortgage  arrears  report 
was published on March 6 2013).  

Observed.  The  public  target  for  offering  durable 
restructures was announced on 13 March 2013. 

Observed. 
(The 
31 March 2013).  

bill  was 

published 

on 

44 

 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
of 

loan 

under 

prudent 

collateral 

appropriately 

Conveyancing  Law  Reform  Act,  so  as  to  remove 
unintended  constraints  on  banks  to  realise  the 
value 
certain 
circumstances. 
The  authorities  will  present  a  comprehensive 
report  on  progress  in  implementing  the  Central 
Bank  of  Ireland’s  action  plan  for  strengthening 
supervision  of  credit  institutions  and  discuss  it 
with  the  staff  of  the  European  Commission,  the 
IMF, and the ECB. 
The authorities will report on banks' progress with 
the  implementation  of  their  strategies  to  address 
loan  arrears  and  unsustainable  debts  in  banks' 
mortgage, and SME loan portfolios. 
The  authorities  will  engage  with  each  bank  to 
ensure 
provisioning 
including  on  key  inputs,  such  as  for  estimating 
cure rates for originally performing, forborne, and 
modified  loans,  to  ensure  these  cures  reflect 
durable modifications. 
annual  model 
Following 
performance 
risk-
weighted  asset  calculations  forecasting  and  stress 
testing  in  advance  of  PCAR  2013,  the  authorities 
will 
the  European 
the  staff  of 
Commission,  the  IMF  and  the  ECB  on  progress 
with  implementation  of  the  findings  from  the 
credit  regulatory  capital  review  process  and  with 
the  specific  mitigating  actions  communicated  to 
the banks. 
Q1: structural reforms 
The  authorities  will  conduct  a  study  to  compare 
the  cost  of  drugs,  prescription  practices  and  the 
usage  of  generics  in  Ireland  with  comparable  EU 
jurisdictions. 

of 
reviews  assessing  banks' 

completion 

report 

to 

Observed. (Report received on 26 March 2013).  

Observed. (Report received on 27 March 2013).  

Observed. (Letters issued 12 February 2013) 

Observed. (Report received on 26 March 2013).  

Delayed.  The  study  has  been  outsourced  to  the 
ESRI,  though  only  at  the  beginning  of  March 
(despite  the  study  had  been  agreed  during  the 
October mission). It is expected to be delivered in 
the next few weeks. 

45 

 
 
 
 
 
 
  
 
 
 
Annex 2: Debt sustainability analysis  

Compared to the 9th review, the sustainability of Ireland's public debt has improved, reflecting the 
recent  decision  in  principle  by  Eurogroup  and  Ecofin  Ministers  to  extend  the  maturities  of  the 
EFSM  and  EFSF  loans  on  average  by  7  years  and  the  commitment  by  the  Irish  authorities  to 
achieve  a  fiscal  surplus  by  2019.48  These  positive  developments  come  on  top  of  the  savings 
generated  by  the  exchange  of  the  promissory  notes  with  longer-dated  government  bonds,  which 
itself  is  estimated  to  lower  the  debt-to-GDP  ratio  by  some  3  pps  by  2020.49  Needless  to  say,  the 
pace  of  debt  reduction  is  dependent  on  realized  growth,  as  well  as  on  the  actual  fiscal  policy 
conducted in the period ahead.50 

The  programme's  baseline  scenario  includes  updated  fiscal  and  macroeconomic  projections  until 
2016 and assumes continued structural adjustment containing expenditure growth over the period 
2017-19 as presented in the 2013 Stability Programme. The extensions of the EU loan maturities is 
estimated to lower the 2020 debt level by around 1pp of GDP given the lower borrowing needs at 
the marginal interest rate of 5.5%. The government balance is projected to register a deficit of 2.3% 
of GDP in 2015 and to improve gradually to reach a surplus of 0.6% of GDP in 2019 (no further 
fiscal  adjustment  is  assumed  after  that  point).  This  path  is  consistent  with  gross  debt  peaking  at 
123%  of  GDP  in  2013,  and  declining  steadily  thereafter  to  96%  of  GDP  by  2020.  The  baseline 
scenario  assumes  nominal  GDP  growth  of  4.4%  and  a  marginal  interest  rate  of  5.5%  over  the 
period 2016-2020.  

A stress scenario with a 1pp lower GDP growth and no additional consolidation measures would 
see  the  deficit  exceed  the  programme  nominal  deficit  targets,  reaching  4.1%  of  GDP  in  2015 
(against a programme target of below 3% of GDP). In the absence of consolidation measures for 
2016, the deficit is projected to worsen to 4.4% of GDP given a negative differential between the 
rate of economic growth and the rate of interest. The primary surplus would be insufficient to stop 
the debt ratio from increasing. Assuming further that a deficit reduction path similar to that of the 
stability programme would be resumed in 2017, the deficit ratio would fall below 3% in 2018. The 
debt ratio in this scenario would reach 117% of GDP in 2020 (rather than 96% in the baseline).  

If instead one assumes that, in the wake of a negative growth shock (1 pp lower growth), additional 
measures are taken to ensure that the programme and EDP deficit path are respected, the debt ratio 
would decline to 110% of GDP by 2020.  

A  scenario  with  a  substantially  higher  marginal  interest  rate  (7.5%)  does  not  materially  alter  the 
debt trajectory due to relatively low refinancing needs. 

48  This  commitment  is  stronger  than  the  previously  used  technical  assumption  of  an  annual  0.5%  GDP 
adjustment  (in  line  with  the  SGP  provision  of  a  minimum  structural  adjustment  of  0.5%  of  GDP  as  a 
benchmark—see also Box 1). 
49  The  baseline  debt  path  below  is  also  lower  than  the  corresponding  path  in  the  9th  review  because  the 
authorities'  medium  term  plans,  as  incorporated  in  the  2013  Stability  Programme  (see  Box  1)  are  for  a 
stronger fiscal balance than had been previously assumed on a technical basis. 
50 All the scenarios in this annex assume the full drawdown of the programme financing envelope. 

46 

 
 
 
 
                                                      
Figure 20: Debt-stabilising primary balance 
in baseline projections 
6

% of GDP

Figure 21: Government debt projections 

130

% of GDP

4

2

0

-2

-4

-6

120

110

100

90

80

70

Debt stabilising primary balance

Primary balance excl. one-offs

Baseline

1pp higher GDP growth

1pp lower growth and fiscal slippage

Lower growth and additional fiscal effort

Marginal interest rate 7.5%

2
0
1
1

2
0
1
2

2
0
1
3

2
0
1
4

2
0
1
5

2
0
1
6

2
0
1
7

2
0
1
8

2
0
1
9

2
0
2
0

2
0
1
1

2
0
1
2

2
0
1
3

2
0
1
4

2
0
1
5

2
0
1
6

2
0
1
7

2
0
1
8

2
0
1
9

2
0
2
0

Source: Commission service's estimates 

Notes:  
Baseline  assumptions:  Programme  projections  until  2016.  Exchequer  cash  balances  of  EUR 18 bn  at  the  end  of  2013, 
EUR 10 bn at the end of 2014 and EUR 7 bn at the end of 2015 and thereafter. After 2016, general government deficit is 
reduced by the adjustment path presented in the stability programme (0.3pp of GDP in 2017, 0.9 pp in 2018 and 1.1 pps 
in  2019)  until  a  surplus  is  reached;  real  GDP  growth  of  2.8%  (4.4%  nominal  growth);  marginal  interest  rate  on  new 
government bonds of 5.5%; cash balances of EUR 7 bn maintained in each year. Some 10% of the general government 
debt,  including short-term  debt,  local  government  debt  and  other  general  government  liabilities  are  assumed  to  remain 
unchanged/rolled-over at constant rates without contributing to analysis dynamics.  
Stress scenario assumptions: GDP scenarios assume lower/higher nominal GDP, and a 0.5 sensitivity of fiscal balance to 
GDP. In the scenario with no policy response (represented by the dark blue in the figure above) the planned annual fiscal 
consolidation effort until 2015 is maintained, while annual fiscal deficit targets may not be met. The budget deficit in this 
scenario would increase to 4.4% of GDP in 2016 from a deficit of 4.1% of GDP in 2015, as the negative growth effect 
would exceed the baseline adjustment in 2016, but applying the baseline correction for 2017-19 the deficit would decline 
to  1.9%  of  GDP  in  2019  and  to  0.9%  of  GDP  in  2020  (assuming  adjustment  of  1pp  of  GDP).  In  the  scenario  with 
additional  fiscal  effort  (grey  line  in  figure  above),  the  government  ensures  that  the  fiscal  deficit  targets  under  the 
programme/EDP  are  met,  even  though  this  requires  additional  consolidation  measures  and  has  an  additional 
contractionary  impact  on  growth.  The  scenario  assumes  that  the  adjustment  path  of  the  stability  programme  is 
implemented for the period 2016-19 and reaching a balance in 2020. 

47 

 
 
 
Annex 3: Supplementary tables 

Table A1: Use and supply of goods and services (volume) 

Annual % change

2010

2011

2012

2013

2014

2015

2016

  1. Private consumption expenditure
  2. Government consumption expenditure
  3. Gross fixed capital formation

  4. Final domestic demand
  5. Change in inventories

  6. Domestic demand
  7. Exports of goods and services 

  7a.  - of which goods
  7b.  - of which services

  8. Final demand
  9. Imports of goods and services 

  9a.  - of which goods
  9b.  - of which services

 10. Gross domestic product at market prices

Contribution to change in GDP

 11. Final domestic demand
 12. Change in inventories + net acq. of valuables
 13. External balance of goods and services 

0.5
-4.6
-22.7

-2.3
-4.3
-12.2

-0.9
-3.4
1.1

-0.1
-2.5
1.0

-5.0

-4.2

-1.2

-0.6

-4.4
6.2
5.3
7.2

1.1
3.6
-1.1
6.5

-0.8

-4.3
0.6
2.9

-3.7
5.1
2.7
7.7

1.2
-0.3
-2.3
0.8

1.4

-3.4
0.4
5.4

-1.5
2.9
-2.8
8.9

1.1
0.3
-2.7
2.0

0.9

-1.0
-0.2
2.8

-0.6
2.6
-0.9
6.0

1.3
1.7
1.6
1.7

1.1

-0.4
0.0
1.5

1.2
-2.8
4.0

0.7

0.7
3.5
2.0
4.8

2.4
2.6
2.5
2.6

2.2

0.5
0.0
1.7

1.6
-2.5
6.0

1.3

1.3
4.5
4.4
4.5

3.2
3.8
4.1
3.7

2.7

1.0
0.0
1.7

1.6
0.3
5.1

1.9

1.9
4.5
4.5
4.5

3.5
4.2
4.2
4.2

2.8

1.4
0.0
1.5  

Table A2: Use and supply of goods and services (value) 

Annual % change

2010

2011

2012

2013

2014

2015

2016

  1. Private consumption expenditure
  2. Government consumption expenditure
  3. Gross fixed capital formation

  4. Final domestic demand
  5. Change in inventories

  6. Domestic demand
  7. Exports of goods and services 

  8. Final demand
  9. Imports of goods and services 
  10. Gross national income at market prices
  11. Gross value added at basic prices

 12. Gross domestic product at market prices

-1.6
-8.8
-26.9

-8.0
-66.1

-7.4
7.8

2.5
6.6
-2.2
-1.9

-3.0

-0.8
-1.8
-13.7

0.5
-1.3
2.1

-3.0
-142.9

0.3
-137.3

-2.7
5.7

-1.9
2.8
-2.5
2.4

1.6

0.0
6.2

5.6
4.4
3.2
2.3

2.9

1.4
-1.6
5.0

1.2
21.6

1.5
3.7

2.8
3.0
-1.7
2.4

2.4

2.4
-1.8
8.4

2.2
-11.0

2.2
4.5

3.6
3.7
3.4
3.3

3.5

3.2
-1.5
11.0

3.3
0.0

3.3
5.7

4.7
5.2
3.2
4.3

4.3

3.2
1.2
10.2

3.9
0.0

3.9
5.5

4.9
5.3
3.4
4.7

4.5  

48 

 
 
 
 
 
 
 
Table A3: Implicit price deflators 

% change in implicit price deflator

2010

2011

2012

2013

2014

2015

2016

  1. Private consumption expenditure
  2. Government consumption expenditure
  3. Gross fixed capital formation

  4. Domestic demand
  5. Exports of goods and services 

  6. Final demand
  7. Imports of goods and services 

  8. Gross domestic product at market prices

       HICP

-2.1
-4.3
-5.4

-3.2
1.6

-0.6
2.9

-2.2

-1.6

1.5
2.6
-1.7

1.4
0.6

0.9
3.1

0.2

1.2

1.5
2.1
1.0

1.5
3.2

2.5
4.1

1.9

1.9

1.6
0.9
4.0

1.7
1.0

1.3
1.3

1.3

1.3

1.1
1.0
4.2

1.5
1.0

1.2
1.1

1.3

1.3

1.6
1.0
4.7

1.9
1.2

1.5
1.3

1.6

1.6

1.5
0.9
4.8

1.9
1.0

1.4
1.0

1.6

1.8  

Table A4: Labor market and labor costs 

Annual % change

2010

2011

2012

2013

2014

2015

2016

1. Labour productivity
2. Compensation of employees per head
3. Unit labour costs
4. Total population
5. Population of working age (15-64 years)
6. Total employment 
7. Calculated unemployment rate - Eurostat definition (%)

3.4
-3.0
-6.7
0.3
-0.8
-4.0
13.9

3.3
-0.1
0.2
2.3
2.1
-1.8
14.9

1.5
0.8
-0.1
0.4
-0.6
-0.6
14.7

0.8
0.3
-0.6
0.8
-0.6
0.2
14.1

1.3
0.2
-0.9
0.9
-0.1
0.9
13.7

0.6
0.3
-0.4
1.0
0.1
2.0
12.9

0.7
0.3
-0.5
1.2
0.4
2.1
12.4  

Table A5: External balance 

levels

2010

2011

2012

2013

2014

2015

2016

1. Exports of goods (fob)
2. Imports of goods (fob)

3. Trade balance (goods, fob/fob) (1-2)

3a. p.m. (3) as % of GDP

4. Exports of services
5. Imports of services

6. Services balance (4-5)

6a. p.m. 6 as % of GDP

7. External balance of goods & services (3+6)

7a. p.m. 7 as % of GDP

8. Balance of primary incomes and current

8a. - of which, balance of primary income
8b. - of which, net current Transfers

8c. p.m. 8 as % of GDP

9. Current external balance (7+8)

9a. p.m. 9 as % of GDP
10. Net capital transactions

11. Net lending (+)/ net borrowing (-) (9+10)

11a. p.m. 11 as % of GDP

82.6
46.9

35.8
22.8
75.2
81.5

-6.3
-4.0

29.5
18.8
-27.7
-25.2
-2.5
-17.7

1.8
1.1
-0.7

1.1
0.7

84.9
48.3

36.6
23.0
81.9
83.6

-1.7
-1.1

34.9
22.0
-33.2
-31.0
-2.2
-20.9

1.7
1.1
-0.2

1.5
0.9

86.4
50.0

36.4
22.2
90.7
87.6

3.1
1.9

39.5
24.1
-31.5
-31.5
0.0
-19.2

8.0
4.9
-0.2

7.8
4.8

86.7
51.5

35.2
21.0
97.0
90.3

6.7
4.0

41.9
25.0
-36.8
-37.7
0.9
-22.0

5.1
3.1
-2.6

2.6
1.5

89.3
53.4

35.9
20.7
102.7
93.6

9.1
5.2

45.0
26.0
-38.3
-39.3
1.0
-22.1

6.7
3.9
-0.9

5.8
3.4

94.4
56.2

38.1
21.1
108.6
98.4

10.2
5.6

48.3
26.7
-41.5
-42.4
0.9
-22.9

6.8
3.8
-0.2

6.6
3.7

99.6
59.2

40.4
21.4
114.6
103.6

11.0
5.8

51.4
27.2
-45.0
-45.9
1.0
-23.8

6.4
3.4
-0.2

6.2
3.3  

49 

 
 
 
 
 
 
 
Table A6: Fiscal accounts 

2008

2009

2010

2011

2012

2013

2014

2015

2016

% of GDP

11.5
10.7
7.3
3.3
1.4

34.2
1.0

35.2

12.3
6.0
2.5
15.5
3.2
0.6
1.6

41.6
3.5
20.9

66.1

11.1
12.1
6.4
3.2
1.3

34.2
0.7

34.9

12.0
5.6
2.4
15.7
3.3
0.4
1.5

40.9
2.5
4.8

48.2

11.3
10.8
7.4
2.8
1.3

33.7
1.0

34.7

12.8
6.4
2.3
15.2
2.0
0.6
1.9

41.3
3.8
3.5

48.6

-13.9

-30.8

-13.4

-11.4

-10.7

-9.1

EUR billion

18.3
17.4
12.0
4.5
2.1

54.3
1.7

56.0

20.7
10.4
3.8
24.6
3.3
0.9
3.1

66.7
6.1
5.6

17.9
16.7
11.5
5.2
2.2

53.6
1.6

55.1

19.3
9.3
3.9
24.3
5.0
0.9
2.4

65.1
5.5
32.8

78.4

103.4

17.7
19.2
10.3
5.1
2.1

54.3
1.1

55.4

19.1
8.9
3.8
25.0
5.3
0.6
2.3

65.1
4.0
7.6

76.7

11.0
12.8
5.8
3.0
1.4

34.0
0.6

34.6

11.5
5.2
2.5
15.0
3.7
0.4
1.4

39.8
2.0
0.4

42.2

-7.6

-7.6

18.0
20.9
9.5
4.9
2.3

55.6
1.0

56.6

18.8
8.6
4.1
24.6
6.1
0.6
2.3

65.0
3.3
0.7

69.1

12.4
11.5
6.8
2.3
1.3

34.5
1.2

35.7

11.9
5.8
2.2
12.3
1.3
0.5
1.9

35.9
5.3
1.9

43.1

-7.4

-7.4

22.2
20.7
12.2
4.2
2.3

61.7
2.2

63.9

21.2
10.4
3.9
22.0
2.4
0.9
3.4

64.2
9.5
3.3

77.0

11.0
13.1
5.9
2.6
1.7

34.1
0.6

34.7

11.1
4.8
2.3
14.3
4.9
0.4
1.3

39.1
1.7
1.4

42.2

-7.5

-7.5

18.4
21.9
9.8
4.3
2.8

57.1
1.0

58.1

18.6
8.0
3.9
23.9
8.2
0.6
2.2

65.5
2.8
2.3

70.7

11.1
13.6
5.8
2.3
1.4

34.3
0.6

34.9

10.6
4.4
2.1
13.5
4.9
0.4
1.3

37.1
1.6
0.5

39.2

-4.4

-4.4

19.3
23.5
10.1
4.1
2.5

59.5
1.0

60.5

18.3
7.6
3.7
23.3
8.5
0.6
2.2

64.4
2.8
0.9

68.0

11.1
13.9
5.6
2.2
1.4

34.3
0.3

34.6

10.1
4.0
2.0
12.6
4.9
0.4
1.3

35.2
1.5
0.1

36.9

-2.3

-2.3

20.1
25.2
10.2
4.0
2.5

62.0
0.6

62.6

18.3
7.3
3.5
22.8
8.9
0.6
2.3

63.7
2.8
0.2

66.7

10.9
13.9
5.5
2.1
1.2

33.7
0.3

34.0

9.7
3.9
1.9
12.4
4.9
0.3
1.2

34.3
1.5
0.1

35.9

-1.9

-1.9

20.7
26.3
10.3
4.0
2.4

63.7
0.6

64.3

18.3
7.3
3.6
23.4
9.3
0.6
2.3

64.9
2.8
0.2

67.9

Indirect taxes
Direct taxes
Social contributions
Sales
Other current revenue

Total current revenue
Capital transfers received

Total revenue

Compensation of employees
Intermediate consumption
Social transfers in kind via market producers
Social transfers other than in kind
Interest paid
Subsidies
Other current expenditure

Total current expenditure
Gross fixed capital formation
Other capital expenditure

Total expenditure

General Government balance

Underlying Government balance (EDP)

Indirect taxes
Direct taxes
Social contributions
Sales
Other current revenue

Total current revenue
Capital transfers received

Total revenue

Compensation of employees
Intermediate consumption
Social transfers in kind via market producers
Social transfers other than in kind
Interest paid
Subsidies
Other current expenditure

Total current expenditure
Gross fixed capital formation
Other capital expenditure

Total expenditure

General Government balance

-13.2

-22.4

-48.3

-21.3

-12.5

-12.6

-7.5

-4.1

-3.6

Deficit-increasing financial sector measures

4.0

31.6

6.8

0.0

0.0

0.0

0.0

0.0

Underlying Government balance (EDP)

-13.2

-18.4

-16.7

-14.4

-12.5

-12.6

-7.5

-4.1

-3.6  

50 

 
 
 
Table A7: Debt developments 
2012

2009

2011

2008

2010

2013

2014

2015

2016

Government deficit (%  of GDP)
Government gross debt (% of GDP)

-7.4
44.5

-13.9
64.8

-30.8
92.1

-13.4
106.4

-7.6
117.6

-7.5
123.6

-4.4
120.2

-2.3
116.2

-1.9
112.2

levels, EUR billion

Government deficit
Gross debt
Change in gross debt
Nominal GDP
Real GDP

Real GDP growth (%  change)
Change in gross debt (% of GDP)
Stock-flow adjustments (% of GDP)

-13.2
79.6
32.3
178.9
177.4

-2.1
18.0
10.7

-22.4
104.5
24.9
161.3
167.7

-5.5
15.5
1.6

-48.3
144.2
39.6
156.5
166.4

-0.8
25.3
-5.5

-21.3
169.2
25.1
159.0
168.8

1.4
15.8
2.4

-12.5
192.5
23.2
163.6
170.4

0.9
14.2
6.6

-12.6
207.0
14.5
167.5
172.2

1.1
8.7
1.2

-7.5
208.3
1.3
173.4
176.0

2.2
0.8
-3.6

-4.1
210.1
1.8
180.9
180.6

2.7
1.0
-1.3

-3.6
212.1
2.0
189.1
185.7

2.8
1.1
-0.9

% of GDP

Gross debt ratio
Change in gross debt ratio

44.5
19.4

64.8
20.3

92.1
27.3

106.4
14.3

117.6
11.2

123.6
5.9

120.2
-3.4

116.2
-4.0

112.2
-4.0

Contribution to change in gross debt

Primary deficit
"Snow-ball" effect
of which

Interest expenditure
Real growth effect
Inflation effect

Stock-flow adjustments

6.0
2.7

1.3
0.6
0.8

10.7

11.8
7.0

2.0
2.7
2.3

1.6

27.7
5.2

3.2
0.5
1.5

10.0
1.9

3.3
-1.3
-0.2

3.9
0.8

3.7
-1.0
-2.0

2.6
2.2

4.9
-1.2
-1.5

-0.5
0.7

4.9
-2.6
-1.5

-2.7
0.0

4.9
-3.1
-1.9

-3.0
0.0

4.9
-3.1
-1.8

-5.5

2.4

6.6

1.2

-3.6

-1.3

-0.9

Implicit interest rate

5.1

4.1

4.8

3.7

3.6

4.3

4.1

4.3

4.4

Notes: 
The projections assume no use of precautionary contingencies foreseen in the programme's financing plan. Stock-
flow adjustments include an assumed reduction in liquid assets by some 3% of GDP by 2015 and other smaller 
financial transactions.

51 

 
 
 
 
Annex 4: Updated programme documents 

52 

 
 
 
Letter of Intent 

53 

 
 
 
54 

 
 
 
55 

 
 
 
56 

 
 
 
Ireland 
Memorandum of Understanding 
On 
Specific Economic Policy Conditionality 
(Ninth Update) 
3 June 2013 

DRAFT 

1.  With  regard  to  Council  Regulation  (EU)  n°  407/2010  of  11  May  2010  establishing  a 
European  Financial  Stabilisation  Mechanism  (EFSM),  and  in  particular  Article  3(5) 
thereof,  this  eighth  update  of  the  Memorandum  of  Understanding  on  Specific 
Economic Policy Conditionality (MoU) details the general economic policy conditions 
as embedded in Council Implementing Decision 2011/77/EU of 7 December 2010 on 
granting Union financial assistance to Ireland. 

2.  The quarterly disbursement of financial assistance from the EFSM1 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 deficit 
procedure  (EDP),  and  a  positive  evaluation  of  progress  made  with  respect  to  policy 
criteria  in  the  Memorandum  of  Economic  and  Financial  Policies  (MEFP)  and  this 
updated MoU, which details and further specifies the 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.  

3.  For  the  duration  of  the  EU/IMF  financial  assistance  programme  the  Irish  authorities 
will  take  all  the  necessary  measures  to  ensure  a  successful  implementation  of  the 
programme  and  minimise  the  costs  to  the  taxpayers,  while  protecting  the  most 
vulnerable. In particular, they commit to:  

⎯  Rigorously implement fiscal policy consistent with the requirements 
of  the  excessive  deficit  procedure.  In  particular,  the  Department  of 
Finance and the Department of Public Expenditure and Reform will 
continue  to  ensure  effective  tax  collection  and  tight  supervision  of 
expenditure commitments by the line departments to ensure that the 
primary  deficit  target  in  cash  (see  Table  1  of  MEFP  and  the 
Technical  Memorandum  of  Understanding,  TMU)  and  the  general 
Government nominal budget deficit on ESA95 basis as set out in the 
EU  Council  Recommendation  on  excessive  deficit  procedures  are 
achieved.  Any  additional  unplanned  revenues  must  be  allocated  to 

1 On 28 November 2010 Eurogroup and ECOFIN Ministers issued a statement clarifying that euro-area and 
EU financial support will be provided on the basis of the programme which has been negotiated with the Irish 
authorities by the Commission and the IMF, in liaison with the ECB. Further to the Union support from the 
EFSM,  loans  from  the  EU  and  its  Member  States  will  include  contributions  from  the  European  Financial 
Stability Facility (EFSF) and bilateral lending support from the United Kingdom, Sweden, and Denmark. The 
Loan Facility Agreements on these financing contributions will specify that the disbursements there under are 
subject to the compliance with the conditions of this Memorandum. 

57 

 
 
 
 
                                                      
debt  reduction.  Moreover,  the  nominal  value  of  Social  Welfare 
pensions will not be increased. 

⎯  Continue  to  strengthen  the  fiscal  framework  and  reporting  in  line 

with EU requirements.  

⎯  Use at least  half  of  the proceeds from state asset sales for  eventual 
debt  reduction  while  also  reinvesting  the  remainder  of  the  total 
realised proceeds in projects which are of a commercial nature, meet 
ex-ante cost benefit criteria, enhance employment and preserve long 
term  fiscal  sustainability,  including  Programme  and  EDP  fiscal 
targets. 

⎯  Continuously  monitor  financial  markets  to  exploit  opportunities  to 
return  to  commercial  funding  as  soon  as  possible  and  on  a 
sustainable basis.  

⎯  Ensure that activation services are enhanced, to tackle the high and 
persistent  rate  of  long-term  unemployment.  In  particular,  the 
Department of Social Protection will take steps to improve the ratio 
of  vacancies  filled  off  the  live  register,  focus  on  re-training  the 
unemployed  to  reduce  the  risk  of  long-term  unemployment  and 
ensure  appropriate 
implementation  of 
sanctions.  Generally,  the  government  will  advance  its  plans  to 
introduce  new  activation  measures  building  on  Pathways  to  Work 
(the  government's  strategy  for  institutional  reform  of  the  activation 
system). 

incentives 

through 

the 

⎯  Ensure that no further exemptions to the competition law framework 
will be granted unless they are entirely consistent with the goals of 
the EU/IMF Programme and the needs of the economy. 

⎯  Ensure 

that  NAMA:  (i)  maintains 

the  highest  standards  of 
transparency 
governance  with  appropriate  accountability  and 
arrangements;  (ii)  reduces  the  costs  of  its  operations;  and  (iii) 
constructively  contributes  to  the  restoration  of  the  Irish  property 
market in the course of meeting the asset disposal targets established 
and  monitored  by  the  NAMA  Board,  including  redemption  of  €7.5 
billion worth of senior bonds by end 2013. 

⎯  Ensure  that  the  restructuring  of  credit  unions,  via  the  Credit  Union 
Restructuring  Board,  will  underpin  the  financial  stability  and  long 
term sustainability of the sector. The restructuring will be completed 
in  as  short  a  timeframe  as  possible  under  a  clear  plan  identifying 
credit  unions  appropriate  for  restructuring,  subject  to  Central  Bank 
regulatory  approval.  As  regards  funding,  the  first  call  should  be  on 
the credit unions concerned or the sector as a whole; any Exchequer 
funding should be minimised, should be provided only in the context 
of  a  restructuring  plan  in  compliance  with  EU  state  aid  rules,  and 
should be recouped from the sector over time. In parallel, the Central 
Bank  will  continue  its  inspections  to  determine  the  financial 
condition of the weakest credit unions, and will engage its resolution 
powers as needed, drawing on Resolution Fund resources if required.  

58 

 
 
⎯  The authorities will report quarterly on progress in implementing the 
strategy  for  the  reorganisation  of  Irish  credit  institutions,  including 
any steps to strengthen the credit union sector, and discuss it with the 
staff of the European Commission, the IMF, and the ECB. 

⎯  Ensure continued compliance with the minimum Core Tier 1 Capital 

ratio of 10.5% for all PCAR banks (AIB, BOI, and PTSB). 

⎯  In preparation for the timely introduction of the Single Supervisory 
Mechanism (SSM) the Irish authorities, in consultation with staff of 
the EC, ECB and IMF, will conduct a stress test in accordance with 
the  new  EU  methodology,  ahead  of  and  in  close  proximity  to  the 
upcoming  SSM  exercise.  In  addition,  the  authorities  will  consult 
with  the  staff  of  the  EC,  ECB,  and  IMF,  and  taking  into  account 
progress  in  developing  the  relevant  SSM  methodology,  advance 
preparatory work on a number of fronts including the preparations of 
the loan loss forecasting models underpinning the forthcoming stress 
test. The models will be subject to external validation. 

⎯  Consult  ex-ante  with  the  European  Commission,  the  ECB  and  the 
IMF  on  the  adoption  of  policies  that  are  not  included  in  this 
Memorandum  but  that  could  have  a  material  impact  on  the 
achievement of programme objectives.  

4.  To  facilitate  programme  monitoring,  the  authorities  will  provide  the  European 

Commission, the ECB and the IMF with: 

⎯  All  information  required  to  monitor  progress  during  programme 
implementation and to track the economic and financial situation.  

⎯  A compliance report on the fulfilment of the conditionality prior to 

the release of the instalments.  

⎯  Reliable  and  regular  availability  of  budgetary  and  other  data  as 

detailed in Annex 1. 

1.  Actions for the eleventh review (actions to be completed by end Q2-2013) 

Financial sector reforms 

Capital assessment 

5.  The authorities will report by end of May 2013 on the evolution of regulatory capital 
within the PCAR banks up to the end of December 2012, and will present and discuss 
their findings with the staff of the European Commission, the IMF, and the ECB. 

Deleveraging 

6.  The authorities, in consultation with  the staff of the European Commission, the IMF, 
and the ECB, will assess banks' deleveraging based on the existing nominal targets for 
disposal  and  run-off  of  non-core  assets  in  line  with  the  2011  Financial  Measures 

59 

 
 
 
Programme. Fire sales of assets will be avoided, as will any excessive deleveraging of 
core portfolios, so as not to impair the flow of credit to the domestic economy.  

Funding and liquidity monitoring 

7.  The authorities will provide staff of the European Commission, the IMF, and the ECB 
with  a  detailed  assessment  of  banks'  progress  towards  the  relevant  Basel  III 
requirements using the advanced monitoring framework.  

Asset quality 

8.  In consultation with staff of the EC, ECB, and IMF, the authorities will update, where 
necessary,  by  end-May  2013  the  2011  Impairment  Provisioning  and  Disclosure 
Guidelines  specifying  the  criteria  to  observe  for  exposures  returning  from  non-
performing  to  performing  restructured  status,  acceptable  methods  for  provisioning 
loans under temporary forbearance as well as to calculate cure rates used for collective 
provisioning  purposes.    This  review  will  take  account  of  the  assessment  of  the 
application  of  the  current  guidelines  and  existing  provisioning  methodologies  and 
assumptions employed by the banks. 

9.  The authorities will provide staff of the European Commission, the IMF, and the ECB 
with their assessment of banks' performance with the work-out of their non-performing 
mortgage  and  SME  portfolios  in  accordance  with  the  agreed  key  performance 
indicators.  The  authorities  will  monitor  each  PCAR  bank’s  performance  relative  to 
already-defined  key  performance  indicators  for  progress  in  resolving  problem  loans, 
and also against bank specific targets for reviewing new and existing individual arrears 
cases. 

10. The  authorities  will  publish  banks’  reported  data  on  mortgage  loan  modifications, 
including  re-defaults  of  modified  loans,  to  permit  analysis  of  the  effectiveness  of 
alternative resolution approaches in improving debt service performance. 

11. The authorities will propose a public target requiring the principal mortgage banks to 
complete  durable  restructuring  arrangements  on  a  substantial  share  of  problem 
mortgage loans during 2013. 

12. The  authorities  will  issue  guidance  to  the  credit  institutions  on  the  definition  of  a 

sustainable restructuring arrangement by end-June. 

13. The  authorities  will  establish  individual  bank  targets  requiring  them  to  complete  a 
substantial  share  of  durable  restructuring  arrangements  for  SME  loans  in  arrears  in 
2013. 

14. As  a  stock-taking  of  progress  in  addressing  mortgage  arrears,  the  authorities  will 
prepare a comprehensive review by end-June. The review will assess the effectiveness 
of  the  banks'  mortgage  restructuring  and  resolution  actions  based  on  available 
experience,  having  regard  to  the  broader  policy  framework  and  based  on  its  findings 
consider any necessary adjustments. 

15. While ensuring that balanced incentives and debtors' sustainability are maintained, the 
authorities  will  prepare  amendments  to  the  Code  of  Conduct  on  Mortgage  Arrears 
(CCMA) focused on: (i) replacing the current restrictions on the number of unsolicited 
contacts with contact policies set out by lenders and approved by the boards of those 

60 

 
 
 
lenders;  (ii) amending  the  definition  of  a  non-cooperative  borrower  such  that  key 
protections extend only to borrowers that engage constructively with lenders within a 
specified  time  period  in  a  manner  that  is  consistent  with  addressing  their  arrears.  In 
addition the authorities are considering amendments to permitting modifications of the 
interest rate setting mechanism where the lender has offered an alternative arrangement 
which is advantageous to the borrower in the long term. 

Profitability 

16. The  authorities  will  report  on  the  exploration  of  options  to  lower  the  funding  cost  of 

banks’ tracker mortgage portfolios. 

Financial supervision  

17. The  authorities  will  present  a  comprehensive  report  on  progress  in  implementing  the 
Central  Bank  of  Ireland’s  action  plan  for  strengthening  supervision  of  credit 
institutions and discuss it together with the staff of the European Commission, the IMF, 
and the ECB. 

18. The  authorities  will  report  on  banks'  progress  with  the  implementation  of  their 
strategies to address loan arrears and unsustainable debts in banks' mortgage, and SME 
loan portfolios. 

19. The  authorities  will  review  the  implementation  of  the  2011  CBI  Provisioning  and 
Disclosure guidelines by the covered banks with reference to the end-2012 published 
financial statements.  

Structural reforms 

Expenditure ceilings 

20. The  authorities  will  progress,  and  if  necessary  amend,  the  Ministers  and  Secretaries 
(Amendment)  legislation  to  make  the  already  operational  ceilings  on  aggregate  and 
departmental  expenditure  legally  binding  and  consistent  with  the  expenditure 
benchmark under the Stability and Growth Pact of the European Union. The authorities 
will finalize a circular specifying the operational details of the ceilings—including on 
the circumstances under which they can be revised and on the correction mechanisms, 
and will publish within a month of  enactment. 

State assets 

21. The authorities will report to the staff of the European Commission, the IMF, and the 
ECB on the quantum of the proceeds of any realised asset sales to date. For assets yet 
to be disposed, the authorities will report on progress made and remaining steps.  

Labour market reform 

22. The authorities will report to the staff of the European Commission, the IMF, and the 
ECB  on  the  impact  on  the  labour  market  of  reforms  to  sectoral  wage-setting 
mechanisms undertaken under the programme. 

23. The  authorities  will  prepare  an  action  plan  aimed  at  increasing  the  effectiveness  of 
training and activation supports, building on the recommendations of the DSP Review 
of Employment Support Schemes and the evaluation of JobBridge by end-April 2013. 
The  authorities  will  also  review  the  progress  in  the  rolling  out  of  Intreo  offices  and 

61 

 
 
define  measures  to  address  potential  shortcomings.  The  authorities  are  actively 
considering  the  potential  for  private  sector  involvement  in  providing  employment 
services to the long-term unemployed with a view to a decision by end-June 2013.   

24. The authorities will continue to redeploy and train staff from within the Department of 
Social Protection in order to significantly increase the number of Intreo case managers, 
substantially increase the number and proportion of group and one-to-one engagements 
with  the  long-term  unemployed  and  provide  them  with  adequate  activation  services. 
The authorities will report on progress in achieving the DSP objective of doubling of 
case managers by end-2013. They will also assess the skills adequacy of case managers 
and report on training needs and plans. 

25. The authorities will conduct an evaluation of the employment impact of the 2012 and 
2013 Action Plan for Jobs to inform their policy choices for the Action Plan in 2014. 

Water services reform 

26.  The  Government  will  publish  the  General  Scheme  of  a  Water  Services  Bill  with  the 
aim of defining the regulatory framework for the water sector under a national public 
utility  setting  and  providing  for  the  establishment  of  Irish  Water  in  its  final  form.   
There  will  be  prior  engagement  with  the  European  Commission  as  appropriate,  in 
developing the legislative arrangements. 

Health sector 

27. The authorities will publish a study to compare the cost of drugs, prescription practices 

and the usage of generics in Ireland with comparable EU jurisdictions.  

28. The authorities will develop an eHealth Strategy in conjunction with the HSE by end 
Q2 2013. This will serve as a time-bound action plan for the implementation of eHealth 
systems,  including  a  comprehensive  system  of  ePrescription  which  uses  a  unique 
patient identifier, such as the PPSN – to support and enable the delivery of integrated 
patient care under the reform agenda. 

2.  Actions for the twelfth review (actions to be completed by end Q3-2013) 

Financial sector reforms 

Capital assessment 

29. Taking  into  account  progress  in  developing  the  relevant  SSM  methodology,  the 
authorities will agree with  staff of the European Commission,  the  IMF, and the ECB 
other methodological aspects (of the asset quality review on an incurred loss basis as 
per paragraph 46) - such as the appropriate sample size and selection for loan reviews, 
involvement of third parties independent of the banks and provisioning parameters - by 
end July and test parameters for benchmarking provisioning by end-September. 

30. The authorities will report on the evolution of regulatory capital up to the end of June 
2013 within the banks covered by the PCAR and will present and discuss their findings 
with the staff of the European Commission, the IMF, and the ECB. 

62 

 
 
 
Deleveraging 

31. The authorities, in consultation with the staff of the European Commission, the IMF, 
and the ECB, will assess banks' deleveraging based on the existing nominal targets for 
disposal  and  run-off  of  non-core  assets  in  line  with  the  2011  Financial  Measures 
Programme. Fire sales of assets will be avoided, as will any excessive deleveraging of 
core portfolios, so as not to impair the flow of credit to the domestic economy.  

Funding and liquidity monitoring 

32. The authorities will provide staff of the European Commission, the IMF, and the ECB 
with  a  detailed  assessment  of  banks'  progress  towards  the  relevant  Basel  III 
requirements using the advanced monitoring framework.  

Profitability 

33. The authorities will conduct a forward looking analysis of the operating profit for each 
of  the  PCAR  banks,  including  sensitivity  analysis  to  funding  costs,  to  end  2015.  The 
authorities  will  advise  the  banks  of  the  outcome  of  this  exercise  in  order  to  inform 
banks'  business  and  financial  planning  going  forward.  In  addition  the  authorities  will 
report  on  the  exploration  of  options  to  lower  the  funding  cost  of  banks’  tracker 
mortgage portfolios. 

Asset quality 

34. The  authorities  will  keep  under  review  the  effectiveness  of  statutory  repossession 
arrangements in Ireland based on ongoing experience with repossession actions. Issues 
such  as  length,  predictability  and  cost  of  proceedings,  systems  for  dealing  with  non-
cooperative  borrowers  and  investment  property  debts  will  be  included  in  this  review. 
Where  necessary  appropriate  measures  will  be  brought  forward  quickly  to  deal  with 
any problems arising 

35. The authorities will provide staff of the European Commission, the IMF, and the ECB 
with their assessment of banks' performance with the work-out of their non-performing 
mortgage  and  SME  portfolios  in  accordance  with  the  agreed  key  performance 
indicators.  The  authorities  will  monitor  each  PCAR  bank’s  performance  relative  to 
already-defined  key  performance  indicators  for  progress  in  resolving  problem  loans, 
and also against bank specific targets for reviewing new and existing individual arrears 
cases. 

36. The  authorities  will  publish  banks’  reported  data  on  mortgage  loan  modifications, 
including  re-defaults  of  modified  loans,  to  permit  analysis  of  the  effectiveness  of 
alternative resolution approaches in improving debt service performance. 

37. Following  consultation  with  the  staff  of  the  European  Commission,  the  ECB  and  the 
IMF the authorities will establish a public target requiring the principal mortgage banks 
to  complete  durable  restructuring  arrangements  on  a  substantial  share  of  problem 
mortgage loans during 2013. A public target will also be set for the share of concluded 
arrangements for which the terms are being met to ensure the quality and durability of 
such arrangements. 

63 

 
 
Financial Supervision 

38. The  authorities  will  present  a  comprehensive  report  on  progress  in  implementing  the 
Central  Bank  of  Ireland’s  action  plan  for  strengthening  supervision  of  credit 
institutions and discuss it together with the staff of the European Commission, the IMF, 
and the ECB. 

39. The  authorities  will  report  on  banks'  progress  with  the  implementation  of  their 
strategies to address loan arrears and unsustainable debts in banks' mortgage and SME 
loan portfolios. 

40. Upon  publication  of  the  EU  directive  establishing  a  framework  for  the  recovery  and 
resolution  of  credit  institutions  and  investment  firms,  the  authorities  will  review  the 
Resolution fund levy regulation. 

Structural reforms 

Access to SME credit 

41. Based  on  experience  of  the  operation  of  the  Insolvency  Service  in  the  personal 
insolvency  reform,  the  authorities  will  consider  the  appropriateness  of  further 
enhancements  to  the  company  law  framework  to  facilitate  restructuring,  especially  in 
multi-creditor cases, reduce costs and achieve efficiency gains, including the potential 
for an administrative body to facilitate SME restructuring. 

Water services reform 

42. The Government will publish, as early as possible in Q3 2013, a Water Services Bill 
with the aim of defining the regulatory framework for the water sector under a national 
public  utility  setting  and  providing  for  the  establishment  of  Irish  Water  in  its  final 
form. There will be prior engagement with the European Commission as appropriate, in 
developing the legislative arrangements. 

43. The authorities will communicate the funding model for Irish Water, including an 

outline of the expected levels of State support until such time as it is substantially self-
funded.  

Further education and training 

44. The authorities will conduct by September 2013 a strategic review of the training and 
education  provision  offered  by  Education  and  Training  Boards  (ETBs)  to  guide  the 
strategic work of SOLAS and the FET provision by ETBs. The review will evaluate the 
FET provision in terms of its relevance for labour activation purposes, i.e. whether it is 
suited to the needs and abilities of the large pool of unemployed, in particular the long-
term unemployed, and to the prospective skills needs of the economy. The review will 
provide an assessment of the existing provision as well as recommendations to enhance 
their relevance for activation purposes. 

Health 

45. The  authorities  will  set  high  level  annual  targets  for  increasing  the  share  of  generic 
drug usage in the medium-term. Enabling measures – such as compulsory prescription 
by International non-propriety name (INN) by end-October 2013, where appropriate – 

64 

 
 
required for the achievement of these targets will be put in place and kept under further 
review. 

3.  Actions for the thirteenth review (actions to be completed by end Q4-2013) 

Financial sector reforms 

Capital Assessment 

46.  Taking  into  account  progress  in  developing  the  relevant  SSM  methodology  and  in 
consultation  with  staff  of  the  EC,  ECB  and  IMF  the  authorities  will  complete  a 
preliminary balance sheet assessment by end-October incorporating the results of (i) an  
assessment  of  quantitative  impairment  provisions  and  a  review  of  risk  classification 
i.e.,  an  asset  quality  review  on  an  incurred  loss  basis  and  (ii)  a  review  of  the 
appropriateness of risk weighted assets calculations under alternative assumptions. The 
asset  quality  review  will  be  based  on  the  Central  Bank  of  Ireland’s  Impairment 
Provisioning and Disclosure Guidelines updated at end May 2013.  The balance sheet 
assessment  will  be  finalised  by  end-November  2013  and  the  results  will  be 
communicated  to  the  PCAR  Banks  to  help  inform  their  assessment  of  impairment 
provisions and financial plans going forward. 

Deleveraging 

47. The  authorities  will  produce  a  final  report  of  the  banks'  implementation  of  their 
deleveraging plans under the PLAR 2011. Their compliance with the asset disposal and 
run-off targets in nominal value terms will be discussed with the staff of the European 
Commission, the IMF, and the ECB.  

48. The authorities will produce a final report on progress towards compliance with Basel 

III liquidity and funding requirements by the relevant dates. 

Asset quality 

49. The authorities will provide staff of the European Commission, the IMF, and the ECB 
with their assessment of banks' performance with the work-out of their non-performing 
mortgage  and  SME  portfolios  in  accordance  with  the  agreed  key  performance 
indicators.  The  authorities  will  monitor  each  PCAR  bank’s  performance  relative  to 
already-defined  key  performance  indicators  for  progress  in  resolving  problem  loans, 
and also against bank specific targets for reviewing new and existing individual arrears 
cases. 

50. The  authorities  will  publish  banks’  reported  data  on  mortgage  loan  modifications, 
including  re-defaults  of  modified  loans,  to  permit  analysis  of  the  effectiveness  of 
alternative resolution approaches in improving debt service performance. 

51. The authorities will provide staff of the European Commission, the IMF, and the ECB 
with  a  detailed  assessment  of  banks'  progress  towards  the  relevant  Basel  III 
requirements  using 
the  advanced  monitoring  framework.  This  work  will  be 
complemented  with  an  analysis  of  current  eligible  regulatory  capital  under  Basel 
III/CRD IV by end October.  

65 

 
 
 
 
Financial Supervision 

52. The authorities will present a final comprehensive report on progress in implementing 
the  Central  Bank  of  Ireland’s  action  plan  for  strengthening  supervision  of  credit 
institutions  and  discuss  it  together  with  the  European  Commission,  the  IMF,  and  the 
ECB. 

53. The authorities will provide a final report on banks' progress with the implementation 
of their strategies to address loan arrears and unsustainable debts in banks' mortgage, 
and SME loan portfolios. 

54. The authorities will ensure, subject to the enactment of the Credit Reporting Bill and 
the  completion  of  project  due  diligence,  that  the  Central  Credit  Register  is  at  an 
advanced stage of development. The authorities will also present a final comprehensive 
report on progress in implementing the Central Credit Register and discuss it together 
with the European Commission, the IMF, and the ECB. 

55. The  authorities  will  assess  banks’  fee  income  relative  to  peers  in  selected  other 
jurisdictions.  Based  on  this  assessment  they  will  complete  an  external  review  of  the 
regulation of bank fees. 

Structural reforms 

Labour market reform  

56. The  authorities  will  report  on  compliance  with  the  action  plan  to  double  the  number 

and ensure adequate training of Intreo case managers. 

Water services reform  

57. The  authorities  will  announce  a  definitive  time-plan  for  the  introduction  of  domestic 
water  charges  in  the  fourth  quarter  of  2014.  Consultations  will  be  carried  out  to 
determine the framework for water charges. 

Health 

58. In  line  with  the  eHealth  Strategy,  the  authorities  will  publish  by  end-October 
legislation  in  conformity  with  data  protection  law  to  enable  the  introduction  of 
universal and unique health identifiers for patients and service providers as well as to 
facilitate the introduction of full ePrescription. 

59. The authorities will adopt a framework by end-October to streamline and consolidate 
multiple and fragmented financial management and accounting systems and processes 
by end-October. 

60. The authorities are committed to the introduction of a prospective case-based payment 
system for public hospitals, in line with a principle of case based  cost recovery for use 
of  public  hospitals  by  public  and  private  patients.  This  will  be  implemented  on  a 
phased basis beginning with a shadow phase by end-October 2013. 

66 

 
 
 
Legal services reform 

61. Once the relevant legislation has been enacted, the authorities will take the appropriate 
measures to establish the Legal Services Regulatory Authority in an expedited fashion. 

67 

 
 
 
Annex 1. Provision of data  

During the programme, the following indicators and reports shall be made available to the staff of 
the European Commission, the IMF, and the ECB by the Irish authorities on a regular basis. The 
External Programme Compliance Unit (EPCU) of the Department of Finance will coordinate and 
collect data and information and forward to the staff of the European Commission, the IMF, and 
the ECB.  

To be provided by the Department of Finance in consultation with the Department of Public 
Expenditure and Reform as appropriate 
Ref. 
F.1  Monthly data on adherence to budget targets (Exchequer 

Report 

Frequency 
Monthly, 10 days after 
the end of each month 

statement, details on Exchequer revenues and expenditure with 
information on Social Insurance Fund to follow as soon as 
practicable). 
Updated monthly report on the Exchequer Balance and General 
Government Balance outlook for the remainder of the year which 
shows transition from the Exchequer Balance to the General 
Government Balance (using presentation in Table 1 and Table 2A 
of the EDP notification). 
Quarterly data on main revenue and expenditure items of local 
Government. 

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 data on general Government accounts, and general 
Government debt as per the relevant EU regulations on statistics. 

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.  
Data on short- and medium- /long-term debt falling due (all 
instruments) over the next 36 months (interest and amortisation) 
for Non-Commercial State Agencies 
Data on short- and medium- /long-term debt falling due (all 
instruments) over the next 36 months (interest and amortisation) 
for local authorities 
Data on short- and medium- /long-term debt falling due (all 
instruments) over the next 36 months for State- owned 
commercial enterprises (interest and amortisation) 

F.2 

F.3 

F.4 

F.5 

F.6 

F.7 

F.8 

F.9 

F.10  Assessment report of the management of activation policies and 
on the outcome of job seekers' search activities and participation 
in labour market programmes. 

F.11  Report on implementation of budgetary measures in the health 

sector, covering inter alia assessment of timeliness and effects vis-
à-vis 2013 Budget plans and explanation for any delay/shortfall, 
as well as update on status of any remaining actions required for 
effective implementation. 

Monthly, 20 days after 
the end of each month 

Quarterly, 90 days 
after the end of each 
quarter 
Quarterly, 30 days 
after the end of each 
quarter 

Quarterly accrual data, 
105 days after the end 
of each quarter  
30 days after EDP 
notifications 

Quarterly, 30 working 
days after the end of 
each quarter 
Quarterly, 30 working 
days after the end of 
each quarter 
Quarterly, 30 working 
days after the end of 
each quarter 
Quarterly, 30 working 
days after the end of 
each quarter. 
Monthly, 30 working 
days after the end of 
each month. 

F.12  Report comparing, against the monthly targets: (i) health 

expenditure by mains service areas, (ii) pay and non-pay element 
of current expenditure, (iii) capital expenditure and (iv) income 
collected. 

Monthly, 7 working 
days after the end of 
each month. 

F.13  Report on pharmaceutical prescriptions and expenditure, including 

information on value and volume of drugs and the extent of the 
use of generics and off-patent drugs.  

Quarterly, 30 working 
days after the end of 
each quarter. 

68 

 
 
 
 
 
F.14  Report on prescribing and dispensing practices by doctors and 

pharmacies. 

F15 

Report on the quantum of pre-installation surveys completed and 
water meters installed by geographical area.              

To be provided by the NTMA 
N.1  Monthly information on the central Government's cash position 

with indication of sources as well of number of days covered  

N.2 

Data on below-the-line financing for central Government. 

N.3 

Data on the National Debt  

N.4 

N.5 

Data on short-, medium- and long-term debt falling due (all 
instruments) over the next 36 months (interest and amortisation) 
for the National Debt. 
Updated estimates of financial sources (bonds issuance, other 
financing sources) for the Exchequer Borrowing Requirement / 
National Debt  in the next 12 months  

To be provided by the Central Bank of Ireland 
C.1 

The Central Bank of Ireland’s balance sheet.  

C.2 

C.3 

C.4 

C.5 

C.6 

C.7 

Individual maturity profiles (amortisation only) for each of the 
domestic banks will be provided as of the last Friday of each 
month. 
Detailed financial and regulatory information (consolidated data) 
on domestic individual Irish banks and the banking sector in total 
especially regarding profitability (P&L), balance sheet, asset 
quality, regulatory capital; PLAR funding plan forecasts including 
LDR, NSFR and LCR outturns and forecasts. 
Detailed information on deposits for the last Friday of each 
month.   

Data on liabilities covered under the ELG Scheme for each of the 
Covered Institutions. 

Deleveraging committee minutes from the banks and deleveraging 
sales progress sheets, detailing pricing, quantum, and other 
relevant result metrics. 
Deleveraging reports including (i) progress achieved towards 
deleveraging in line with the 2011 Financial Measures 
Programme; and (ii) actual and planned asset disposals.  

Quarterly, 30 working 
days after the end of 
each quarter. 
Monthly, 15 working 
days after the end of 
each month. 

Monthly, three 
working days after the 
end of each month 
Monthly, no later than 
15 working days after 
the end of each month 
Monthly, 15 working 
days after the end of 
each month 
Monthly, 30 working 
days after the end of 
each month 
Monthly, 30 working 
days after the end of 
each month 

Weekly, next working 
day  
Monthly, 30 working 
days after each month 
end. 
Quarterly, 40 working 
days after the end of 
each quarter  

Monthly, 30 working 
days after each month 
end. 
Monthly, 30 working 
days after each month 
end. 
Monthly, reflecting 
committee meetings 
held each month 
Quarterly, 40 working 
days after the end of 
the reference period. 

69 

 
 
IRELAND: MEMORANDUM OF ECONOMIC AND FINANCIAL POLICIES 

A. 

Recent Economic and Financial Developments and Outlook 

The economy grew for a second consecutive year in 2012 and a modest 

1. 
recovery is expected to continue in 2013. Real GDP increased by 0.9 percent in 2012 
driven by net exports. The strong performance of services exports outweighed a slowdown 
in goods exports reflecting the “patent cliff” in the pharmaceutical industry and weakness in 
trading partner growth. Notably, domestic demand stabilised during 2012, with private 
consumption and investment registering positive growth in the second half of 2012.  The 
current account surplus rose to 4.9 percent of GDP and real GNP grew by 3.4 percent 
benefiting from lower than expected income outflows. Inflation remained subdued, at 
1.1 percent y/y in the first quarter of 2013, and the unemployment rate eased to 14 percent 
but remains a source of concern. Going forward, we expect real GDP growth of 
approximately 1¼ percent in 2013 and around 2½ percent in 2014. However, this outlook is 
contingent on the growth performance of Ireland’s main trading partners as well as 
continued decisive progress in financial sector repair to support a durable domestic demand 
recovery. 

2. 
Recent financial market developments are favourable, reflecting a deepening 
and broadening of Ireland’s access to capital markets. On March 13 the NTMA issued 
€5 billion in a new 10-year bond at a yield of 4.15 percent. Over 80 percent of the issue was 
taken up by foreign investors, mostly in Europe and there was little uptake by leveraged 
investors. Irish 10-year bond yields have declined to historic lows of around 3.5 percent. 
Ireland continues to access the T-bill market, where demand has been strong and terms 
remain favourable. Funding conditions for banks have also improved evidenced by a 5-year 
€500 million Bank of Ireland covered bond issuance on March 15 against improved spreads. 
Notwithstanding the ELG removal at the end of March, deposit rates and covered bond 
yields have declined further in 2013. The removal of the ELG fees will also improve margins 
and enhance profitability. However, credit continues to decline as redemptions still exceed 
new lending. 

B. 

 Financial Sector Policies 

3. 
Recognising that a sustained economic recovery will increasingly require 
a recovery of lending, we are further strengthening the banks. We will assure that 
(i) banks are on track to achieve sufficient profitability to enhance the capital base and 
sustain new lending going forward; and (ii) the process of resolving impaired assets is firmly 
advancing. Accordingly, we are maintaining pressure through our programme of mortgage 
restructuring targets, complemented by ongoing reforms to consumer protection rules, 
repossession procedures, the personal insolvency framework, and impairment and  
provisioning guidelines. Taken together, this suite of policies raises incentives for banks to 

70 

 
  
 
  
actively pursue sustainable solutions, and to remove impediments from their path, to ensure 
a demonstrable improvement in credit quality during 2013.  

We continue to hold banks to ambitious targets to address troubled residential 

4. 
mortgages to ensure durable reductions in arrears. We will augment the recently 
established Mortgage Arrears Resolution Targets (MART) framework by issuing guidance to 
credit institutions on the definition of sustainable restructuring arrangements by end June. 
We will set targets for the completion of sustainable solutions as specified in the MEFP for 
the 9th review. We continue to monitor each bank’s progress, including through audits and 
against bank-specific targets. As outlined in the MART framework, we are also minded to 
impose a specific provisioning treatment on unresolved impaired mortgages by January 1 
2014,  for end-2014 annual statements. As a stock-taking of progress in addressing 
mortgage arrears, we will prepare a comprehensive review by end June. The review will 
assess the effectiveness of the banks' mortgage restructuring and resolution actions based 
on available experience, having regard to the broader policy framework and based on its 
findings consider any necessary adjustments. 

5. 
We will modify the Code of Conduct on Mortgage Arrears by end June to 
facilitate effective engagement between lenders and distressed borrowers. Informed by 
submissions received during a public consultation, we are preparing amendments focused 
on: (i) replacing the current restrictions on the number of unsolicited contacts with contact 
policies set out by lenders and approved by the boards of those lenders; (ii) amending the 
definition of a non-cooperative borrower such that key protections extend only to 
borrowers that engage constructively with lenders within a specified time period in a 
manner that is consistent with addressing their arrears. In addition we are considering 
amendments to permitting modifications of the interest rate setting mechanism where the 
lender has offered an alternative arrangement which is advantageous to the borrower in the 
long term.  

We recognise the need for efficient repossession procedures to promote the 

6. 
completion of sustainable mortgage solutions. In March, we published the Land and 
Conveyancing Law Reform Bill 2013 to remove unintended constraints on repossessions for 
mortgages created prior to December 2009 as identified by case law. We are seeking 
passage of the legislation before the start of the Oireachtas summer recess. We will keep 
under review the capacity of the Court system in relation to repossession cases and the 
effectiveness of statutory repossession arrangements as set out in the MEFP for the 9th 
review.   

Preparations to make the new personal insolvency framework operational by 

7. 
end June are well underway. The Insolvency Service has disseminated comprehensive 
information on the new debt settlement procedures, including the Reasonable Living 
Expenses Guidelines. Regulations for the licensing and regulation of personal insolvency 
practitioners are about to be finalised, and the appointment of specialist judges is expected 
by June. 

71 

 
 
 
8. 
We are driving forward the process of SME debt restructuring. The CBI is 
reviewing resolution progress through the first set of key performance indicator reports on 
banks’ SME portfolios. Targets for SME debt restructuring are under development  and will 
be communicated to the PCAR banks by the end June deadline. We are focusing supervisory 
effort on strengthening banks’ operational capacity to complete sustainable solutions. On-
site supervisory activities in the second half of 2013 will include individual loan file reviews 
and operational reviews to assess the implementation of the banks SME distressed portfolio 
strategies and that the restructuring process delivers durable solutions. These will also help 
to ensure proper recognition of impairment, collateral valuation, and prudent provision 
coverage.  

The CBI will ensure that the banks continue to observe sound practices for 

9. 
identification of impairment and determining provisioning needs. As specified in the 
MEFP for the 9th review, by end May the CBI will update, where necessary, the 2011 
Impairment Provisioning and Disclosure Guidelines. This update will specify the criteria to 
observe for exposures returning from non-performing to performing restructured status, 
acceptable methods for provisioning loans under temporary forbearance as well as to 
calculate cure rates used for collective provisioning purposes. This review will take account 
of the assessment of the application of the current guidelines and existing provisioning 
methodologies and assumptions employed by the banks.    

10.  We are harmonizing our ongoing bank diagnostic work with the European 
timetable for banking union. A key goal for Ireland is smooth entry into the Single 
Supervisory Mechanism (SSM) in 2014. We will therefore conduct a stress test in accordance 
with the new EU methodology, ahead of and in close proximity to the upcoming SSM 
exercise. We will consult with the staff of the EC, ECB, and IMF on the preparations for the 
stress test, and the loan loss forecasting models underpinning the forthcoming stress test 
will be subject to external validation. 

11.  We are advancing our preparatory work on a number of fronts in the interim. 
Taking into account progress in developing the relevant SSM methodology and in 
consultation with the staff of the EC, ECB, and IMF, we will complete a preliminary balance 
sheet assessment of the PCAR banks  by end October (proposed structural benchmark) 
incorporating the results of: (i) an assessment of quantitative impairment provisions and a 
review of risk classification, i.e., an asset quality review on an incurred loss basis, and (ii) a 
review of the appropriateness of risk weights for regulatory capital purposes. The asset 
quality review will be based on the CBI’s Impairment Provisioning and Disclosure Guidelines 
as updated at end May. Other methodological aspects—such as the appropriate sample size 
and selection for loan reviews and involvement of third parties independent of the banks— 
are to be agreed by end-July 2013 and the test parameters for benchmarking provisioning 
by end-September 2013. This balance sheet assessment will be finalised by end-November 
2013. In addition, we will conduct a forward-looking analysis of operating profits for each of 
the PCAR banks to end 2015, including sensitivity analysis to funding costs, by end 
September (proposed structural benchmark). In parallel, we will report in  June and 

72 

 
 
 
September 2013 on the exploration of options to lower the funding cost of banks’ tracker 
mortgage portfolios, and assess banks’ fee income relative to peers in selected other 
jurisdictions, with a view to completing an external review of our regulation of bank fees by 
end December. We will also analyze current eligible regulatory capital under Basel III/CRD IV 
by end October. All of these work streams will inform the banks’ business and financial plans 
going forward, and we will report to the staff of the EC, ECB, and IMF progress with the 
implementation of specific mitigating actions communicated to banks. 

C. 

Fiscal Policies 

12.  We are committed to achieve the 7.5 percent of GDP deficit target for 2013. 
The finance and social welfare bills implementing many of the Budget 2013 measures have 
been enacted. Property tax notifications have been issued and filings are due by end-May. A 
new bill has been published to promote competition to lower drug costs and we are 
preparing legislation to charge private patients in public hospital beds. Budget 
implementation is on track in the first quarter and we will maintain a careful and proactive 
budget management to contain spending within allocations. We are pressing ahead with 
work place reform to drive up efficiency in public service delivery. We also reaffirm our 
commitment to a durable reduction in public service pay and pensions, including through 
additional saving measures of €300 million in 2013 and €1 billion by 2015, if possible on a 
negotiated basis.  

13. 
To further underpin our medium-term fiscal consolidation path, we are starting 
to prepare a fully specified and equitable package of measures. Budget 2013 stipulated 
significant measures towards achieving our medium term fiscal consolidation effort set out 
in the 2012 Medium Term Fiscal Statement. For the remaining consolidation needed, we are 
developing revenue and expenditure reforms that preserve core public services and protect 
the most vulnerable. In the context of Budget 2014, key departments will present health, 
education, and social protection reform options to the government for consideration. As a 
first step, we will develop an eHealth Strategy as specified in the MOU. 

14.  We continue to strengthen our institutional framework consistent with the EU 
fiscal governance structure. We are bringing forward our budget cycle so that Budget 
2014 is published by October 15. The mandate of the Irish Fiscal Advisory Council (IFAC) will 
be amended to include an ex ante endorsement of the macroeconomic forecasts on which 
future budgets and stability programmes will be based. This will be supported by a 
memorandum of understanding between the Department of Finance and IFAC. We will 
progress, and if necessary amend, the Ministers and Secretaries (Amendment) legislation to 
make the already operational ceilings on aggregate and departmental expenditure legally 
binding and consistent with the expenditure benchmark under the Stability and Growth Pact 
of the European Union. We will finalize a circular specifying the operational details of the 
ceilings—including on the circumstances under which they can be revised and on the 
correction mechanisms—and will publish it within a month of enactment. Altogether, these 

73 

 
 
 
steps will largely complete our Medium Term Budgetary Framework in line with EU 
requirements.  

15.  We are taking further steps to enhance fiscal transparency. The 2013 Revised 
Estimates for the Public Service was published in April, supplemented by key performance 
information on programme outputs and impacts to facilitate assessment of the effectiveness 
of public spending. In addition, the CSO published a new Government Finance Statistics 
Report with annual and quarterly general government data, including on net debt and net 
worth. 

D. 

Structural Reforms 

16.  We will continue to implement measures to improve the environment for job 
creation including through the 2013 Action Plan for Jobs and new capital projects. The 
reforms outlined in the 2013 Action Plan for Jobs will support private sector firms where 
Ireland has a competitive advantage including data processing, ICT, and healthcare 
technologies and products. We will create a single licensing application system for the retail 
sector to further reduce administrative burdens; and will encourage an increase in the 
number of SMEs trading on-line. We will also improve energy efficiency. We will conduct an 
evaluation of the employment impact of the 2012 and 2013 Action Plan for Jobs to inform 
our policy choices for the Action Plan in 2014. As part of our approach to economic stimulus 
and supporting job creation, we are advancing a range of capital projects in key public 
infrastructure areas including roads and schools. The implementation of state asset disposal 
plans for the energy sector is advancing, with the view of obtaining proceeds this year. We 
will use at least half of the resulting proceeds to reduce public debt in due course, with the 
details on timing and implementation to be agreed. The remaining proceeds will be invested 
in job-rich projects of a commercial nature, consistent with our fiscal targets. 

17. 

Reducing unemployment remains our top priority: 

• 

• 

Engagement with the unemployed. We continue to roll out Intreo offices, with 11 
opened in 2012, up to 33 are planned for 2013, with the full roll-out to be completed 
by end-2014. We will ensure the same quality of activation and training services 
extends to all job seekers across the country. We plan to profile all unemployed 
persons on the Live Register by end 2013, set new targets for exits from long-term 
unemployment and boost referrals of long-term unemployed to education and 
training programmes. We will publish every quarter (starting in quarter 2 in 2013) a 
report on progress in meeting targets under pathways to work and on overall 
progress in activating the long term unemployed.  

Case workers. We plan to redeploy 300 staff as case officers by the end of 2013 and 
will ensure their adequate training. We are actively considering the potential for 
private sector involvement in providing employment services to the long-term 
unemployed with a view to a decision by end June 2013.   

74 

 
 
 
• 

JobsPlus. Our new simplified JobsPlus scheme will improve job prospects of the 
long-term unemployed though monthly payments for two years to enterprises hiring 
the long-term unemployed. 

18.  We will strengthen support for SME job creation though a programme to 
alleviate financial constraints, promote equity finance and improve the business 
environment. 

• 

• 

Governance: The SME State Bodies Group will coordinate and assess government 
initiatives in research, policy and information skills, partnerships with the European 
Investment Bank, access to finance, and CBI engagement with banks. We will monitor 
the credit environment for SMEs, optimize the utilization of public funds and assess 
the effectiveness of the policy actions implemented in 2012.  

Lending and equity finance: The Credit Review Office, whose resources have been 
increased recently, will continue to monitor the enforcement of the €4 billion lending 
targets assigned to Bank of Ireland and AIB in 2013. We will actively roll-out three 
new SME funds to provide up to €850 million of new financing to SMEs through 
equity finance and restructuring investment and credit, including through private 
participation. We will ensure that the Temporary Partial Credit Guarantee Scheme 
and the Micro Enterprise Loan Fund are fully utilized subject to sufficient demand 
from SMEs. 

E. 

Programme Financing and Monitoring 

19. 
The programme remains adequately financed and we continue to plan to 
maintain a healthy cash buffer. Over recent months we have made substantial progress in 
further deepening our market access, as demonstrated by our successful issue of a new 
10-year benchmark bond. This brought the total long-term issuance for the year to date to 
around three quarters of the working plan of €10 billion. The remaining issuance could be 
fulfilled through bond auctions subject to market conditions. Incorporating the 7 year 
extension in EFSM/EFSF maximum average maturities agreed on April 12 by EU Finance 
Ministers into our medium-term financing plan will help smooth financing peaks in coming 
years. As part of our prudent return to the markets we expect to conclude 2013 with a cash 
buffer covering 12-15 months of future funding needs.  

20.  We authorise the IMF and the European Commission to publish the Letter of 
Intent and its attachments and the related staff report. 

75 

 
 
 
Ireland: Technical Memorandum of Understanding (TMU) 

June 3, 2013 

1.       This Technical Memorandum of Understanding (TMU) sets out the understandings regarding 
the  definitions  of  the  indicators  subject  to  performance  criteria  and  indicative  targets  under  the 
arrangement  supported  by  the  Extended  Fund  Facility  (EFF).  These  performance  criteria  and 
indicative  targets  are  reported  in  Table  2  attached  to  the  Memorandum  of  Economic  and  Financial 
Policies  (MEFP).  This  TMU  also  describes  the  methods  to  be  used  in  assessing  the  programme 
performance and the information requirements to ensure adequate monitoring of the targets. 

2.       For  programme  purposes,  all  foreign  currency-related  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 measured at current exchange rates. The programme exchange rates are 
those 
IMF’s  website 
(http://www.imf.org/external/np/fin/data/rms_five.aspx, accessed 19 January 2012), in particular, €1 
= 1.2939 U.S. dollar and €1 = 0.842786 SDR.  

that  prevailed  on  December  30,  2011 

shown  on 

the 

as 

I. 

QUANTITATIVE PERFORMANCE CRITERIA AND INDICATIVE TARGETS 

Floor on the Exchequer Primary Balance 

3.       The Exchequer balance is the traditional domestic budgetary aggregate which measures the 
net  surplus  or  net  deficit  position  of  the  Exchequer  Account.  The  Exchequer  Account  is  the  single 
bank  account  of  the  Central  Fund  and  is  held  at  the  Central  Bank  of  Ireland.  The  annual  audited 
accounts  of  the  Exchequer  Account  produced  by  the  Department  of  Finance  are  known  as  the 
Finance Accounts. 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 Central Fund 
and all Government expenditure is funded from it, unless provided otherwise by law.1 The Exchequer 
balance  is  the  difference  between  total  receipts  into,  and  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  expenditure  (voted  expenditure  and  non-
voted  expenditure  charged  directly  on  the  Central  Fund,  including  the  Sinking  Fund).  The  capital 
balance  is  defined  as  capital  receipts  (Sinking  Fund  and  other  capital  receipts)  minus  capital 

1 Receipts of the Central Fund comprise Exchequer tax revenues, non-tax revenues, receipts from the European 
Union  and  other  capital  receipts.  Charges  on  the  Central  Fund  include  the  expenditure  of  Government 
departments  and  offices,  payments  related  to  the  servicing  of  the  national  debt,  payments  to  the  European 
Union  Budget,  the  salaries,  pensions  and  allowances  of  the  President,  judiciary,  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. 

76 

 
 
 
 
 
 
 
 
 
                                                      
expenditure  (voted  and  non-voted  expenditure).  The  Sinking  Fund  provision  is  a  transfer  from  the 
current  account  to  the  capital  account  to  reduce  national  debt  and  has  no  effect  on  the  overall 
Exchequer balance.  

4.       The performance criteria are set on the Exchequer primary balance which is the Exchequer 
balance excluding net debt interest payments in the service of the National Debt. From January 2013 
all payments related to the IBRC promissory notes are excluded from the Exchequer primary balance 
measure used for programme monitoring purposes.2   

5.       For the purposes of the programme, the floor on the Exchequer primary balance (quantitative 
performance criterion) will be adjusted 

(i) 
downward  by  payments  for  bank  restructuring  carried  out  under  the  programme’s  banking 
sector  support  and  restructuring  strategy.  Such  payments  may  include,  inter  alia,  loans  to  banks, 
investments  in  their  equity  (requited  recapitalisation),  unrequited  recapitalisation,  and  purchases  of 
troubled assets, which are carried out in line with programme objectives,  

upward  by  the  amount  of  proceeds  from  sales  of  bank  equity  held  by  the  government  or 

(ii) 
NPRF that are treated as Exchequer receipts, 

upward by the amount of receipts from disposals of state assets specified in the paragraph 21 

(iii) 
of the MEFP dated 29 November 2012, 

downward by the amount of these receipts spent on growth-enhancing projects not included 

(iv) 
in Budget 2013, up to no more than half of these receipts,  

downward  for  Exchequer  contributions  to  the  Resolution  Fund  for  the  resolution  of  credit 

(v) 
institutions, and upward for any Exchequer recoupment from the Resolution Fund, of such outlays.   

(vi) 

upward for any recoupment of Exchequer contributions from the Credit Union Fund.  

Any other financial operation by Government to support banks or other credit institutions including 
credit unions, including the issuance of guarantees or provision of liquidity, will be reported to EC, 
IMF, and ECB staffs. 

6.       The floor on the Exchequer primary balance (quantitative performance 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, 2013 

End-June 2013 (performance criterion) 

End-September 2013 (performance criterion) 

-4.2 

-4.8 

2 Net debt interest payments are as per the end-month Exchequer Statements. 

77 

 
 
 
 
 
 
 
 
 
                                                      
7.       The performance criterion on the Exchequer primary balance (floor) will be adjusted upward 
(downward)  for  the  full  amount  of  any  over-performance  (under-performance)    in  Exchequer  tax 
revenues, pay-related social insurance contributions (PRSI) and national training fund contributions 
against the current projection which is listed below:3   

Cumulative  Exchequer  tax  revenue  &  other  receipts  (as 
outlined in 7. above) 

(In billions of euros) 

From January 1, 2013 

End-June 2013 (projection) 

End-September 2013 (projection) 

21.1 

32.7 

8.       Any policy changes, including in administration and enforcement of taxes, which impact the 
revenue projection set out in paragraph 7 will lead to a reassessment of the adjustor in the context of 
program reviews. 

Ceiling on the Stock of Central Government Net Debt 

9.       The stock of net central government debt, for the purposes of the programme, is defined as 
the  National  Debt  less  liquid  assets  of  the  National  Pensions  Reserve  Fund  (NPRF).  The  National 
Debt is defined as the total outstanding amount of principal borrowed by central government and not 
repaid as of the test date, less liquid assets available  for redemption of those liabilities at the same 
date.  These  liquid  assets  comprise  the  Exchequer  cash  balances  (including  cash  in  the  Capital 
Services  Redemption  Account),  Exchequer  deposits  with  commercial  banks  and  other  institutions, 
and  investments  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 equities, 
government bonds and other listed investments. NPRF shares in domestic Irish banks, as well as the 
NPRF’s non-liquid discretionary portfolio are excluded from the definition of liquid assets.  

10.       For the purposes of the programme, the ceiling on the central government net debt (indicative 
target) will be adjusted  

(i) 
upward  by  debt  arising  from  payments  for  bank  restructuring  carried  out  under  the 
programme’s banking sector support and restructuring strategy.4 These payments may include, inter 
their  equity  (requited  recapitalisation);  unrequited 
alia, 

investments 

to  banks; 

loans 

in 

3 Exchequer tax receipts are comprised of income tax (including the universal social charge), value added tax 
(VAT),  corporation  tax,  excise  duties,  stamp  duties,  capital  gains  tax,  capital  acquisitions,  tax  and  customs 
duties and property tax (from 2013).  
4  This  includes  the  exchange of  the outstanding  IBRC promissory  notes,  which were not part of  the  national 
debt,  with  government  bonds,  which  are  part  of  the  national  debt.  An  according  revision  is  carried  out  for 
indicative targets for central government net debt from March 2013 onwards. 

78 

 
 
 
 
 
 
 
 
 
                                                      
recapitalisation;  and  purchases  of  troubled  assets,  which  are  carried  out  in  line  with  programme 
objectives,  

downward by the amount of proceeds from sales of bank equity held by the government or 

(ii) 
NPRF that are treated as Exchequer or NPRF receipts,  

downward by the amount of receipts from disposals of state assets specified in the paragraph 

(iii) 
21 of the MEFP dated 29 November 2012, 

upward by the amount of these receipts spent on growth-enhancing projects not included in 

(iv) 
Budget 2013, up to no more than half of these receipts,  

(v) 
upward  for  Exchequer  contributions  to  the  Resolution  Fund  for  the  resolution  of  credit 
institutions,  and  downward  for  any  Exchequer  recoupment,  from  the  Resolution  Fund,  of  such 
outlays.   

downward for any recoupment of Exchequer contributions from the Credit Union 

(vi) 
Fund. 

(vii) 

downward by the amount liquidated from the NPRF non-liquid discretionary portfolio. 

downward  (upward)  by  valuation  gains  (losses)  in  the  NPRF  liquid  portfolio.  The 

(viii) 
programme exchange rates will apply to all non-euro denominated debt.  

upward by the amount of cumulative drawings on NPRF’s SME focussed funds up to €500 

(ix) 
million. 

The  ceiling  on  the  outstanding  stock  of  central  government  net  debt  will  be  adjusted  upward 
(downward) by the amount of any final upward (downward) revision to the stock of end-December 
2012 central government net debt. 

Central government net debt 

(In billions of euros) 

Outstanding stock: 

End-March 2013 (provisional) 

End-June 2013 (indicative target) 

End-September 2013 (indicative target) 

161.8 

171.1 

172.3 

Non-accumulation of External Payments Arrears by Central Government 

11.       The central government will accumulate no external payments arrears during the programme 
period. For the purposes of this performance criterion, an external payment arrear will be defined as a 
payment  by  the  central  government  on  its  contracted  or  guaranteed  external  debt  that  has  not  been 
made  within  five  business  days  after  falling  due,  excluding  any  contractual  grace  period.  The 
performance criterion will apply on a continuous basis. 

12.       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.  

79 

 
 
 
 
 
 
 
 
 
 
II. 

REPORTING REQUIREMENTS 

13.       Performance  under  the  programme  will  be  monitored  using  data  supplied  to  the  EC,  IMF, 
and ECB staffs. The Irish authorities will transmit promptly any data revisions.  

•  The Department of Finance will report to the EC, IMF and ECB staff, with a lag of no more than 

seven days after the test date the following data: the Exchequer primary balance, Exchequer tax 
revenues, payments for bank restructuring carried out under the programme’s banking sector 
support and restructuring strategy, proceeds from sales of bank equity held by the government or 
NPRF that are treated as Exchequer receipts, receipts from disposals of state assets specified in 
the paragraph 21 of the MEFP dated 29 November 2012 and associated outlays on growth-
enhancing projects not included in Budget 2013, Exchequer outlays for the resolution and 
restructuring of credit unions, any return of such outlays to the Exchequer and also for the 
recoupment of such outlays by the Exchequer from the Resolution Fund and the Restructuring 
and Stabilisation Fund.  

•  The National Treasury Management Agency will provide provisional figures on the outstanding 

stock of net government debt, including an unaudited analysis of NPRF holdings, with a lag of no 
more than seven days after the test date. The revised figures will be provided within 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 EC, IMF and ECB staffs, with a lag of not 
more than seven days after the arrears arise in accordance with the definition of external 
payments arrears as set forth in paragraph 12 of this memorandum. 

The  Central  Bank  of  Ireland  will  provide  on  a  quarterly  basis,  bank  by  bank  data  on  the  assets  of 
government guaranteed banks, including loans and provisioning by period overdue (90+days and less 
than 90 days) and category of borrower, 40 working days after the end of each quarter. 

80 

 
 
 
 
 
 
Measure 

Date 

Status 

Table 1. Programme Monitoring 

Quantitative Performance Criteria 
Cumulative exchequer primary balance 

Indicative Target 

End-March 2013 

Observed 

Ceiling on the stock of central government net debt 

End-March 2013 

Observed 

Continuous Performance Criteria 
Ceiling  on  the  accumulation  of  new  external  payments  arrears  on 
external debt contracted or guaranteed by the central government 

Structural Benchmarks 
Define the criteria to run stringent stress tests scenarios. 
Agree on terms of reference for the due diligence of bank assets by 
internationally recognised consulting firms.  

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. 

Submit  to  Dáil  Éireann  the  draft  legislation  on  a  special  resolution 
regime. 
The  Central  Bank  to  complete  the  assessment  of  the  banks’ 
restructuring plans. 
Complete the diagnostic evaluation of banks’ assets.  
Complete stress tests (PCAR 2011).  
Complete a full assessment of credit unions’ loan portfolios 
Finalise plans for the recapitalisation of Irish Life and Permanent. 
Establish a Fiscal Advisory Council. 
Complete  the  recapitalisation  of  Allied  Irish  Banks,  Bank  of  Ireland, 
Irish Life and Permanent and EBS Building Society. 
Submit the Supervision and Enforcement Bill to Oireachtas. 
Complete  the  legal  merger  procedures of  Allied  Irish  Bank  and  EBS 
Building Society. 

Continuous 

Observed 

End-December 2010  Observed 
End-December 2010  Observed 

End-February 2011 

Not observed1/

End-February 2011 

Observed2/ 

End-March 2011 

Observed 

End-March 2011 
End-March 2011 
End-April 2011 
End-May 2011 
End-June 2011 
End-July 2011 

Observed 
Observed 
Observed 
Observed 
Observed 
Observed  

Observed  
End-July 2011 
End-September 2011  Observed 

Publish  a  memorandum  of  understanding  governing  the  relationship 
of  the  Department  of  Finance  and  the  Central  Bank  in  relation  to 
banking sector oversight. 
The merger of Irish Nationwide Building Society and Anglo-Irish bank.  End-December 2011  Observed 
End-December 2011  Observed 
Central  Bank  to  issue  guidance  to  banks  for  the  recognition  of 
accounting losses incurred in their loan book. 

End-October 2011 

Observed3/ 

Finalise a strategy to guide the development of broader legal reforms 
around personal insolvency, including significant amendments to the 
Bankruptcy Act 1998 and the creation of a new structured non-judicial 
debt settlement and enforcement system. 

Introduce  a  medium-term  expenditure  framework  with  binding  multi-
annual expenditure ceilings with broad coverage and consistent with 
the fiscal consolidation targets. 

End-December 2011  Observed 

2012  Budget  day  in 
early December 2011 

Observed 

Updated restructuring plan for the PTSB detailing the actions needed 
to ensure viability of its core businesses.  

End-June 2012 

Observed 

81 

 
 
 
 
 
 
 
 
 
 
 
Table 1. Programme Monitoring (concluded) 

Measure 

Submit to parliament, as part of the Fiscal Responsibility Bill, a legal 
its 
for 
framework 
independence. 

the  Fiscal  Advisory  Council  ensuring 

Date 

Status 

End-September 2012 

Observed 

Publish legislation to strengthen the regulatory framework for credit 
for  effective 
unions, 
governance standards and prudential requirements 

legislative  provision 

including  making 

End-September 2012 

Observed 

Approve  regulations  to  establish  a  charge  levied  across  credit 
institutions  to  recoup  over  time  the  costs  of  resolving  vulnerable 
institutions 
Request  an  external  BCP  assessment  in  support  of  efforts  to 
strengthen financial supervision and regulation 

End-September 2012 

Observed 

End-March 2013 

Observed 

Establish  a  public  target  requiring  the  principal  mortgage  banks  to 
offer a substantial share of restructuring arrangements during 2013 

End-March 2013 

Observed 

1/ Central Bank directions were issued within the required timeframe. However, completion of the capital injections required 
was  postponed  by  the  Minister  for  Finance  until  after  the  General  Election.  These  directions  are  now  superseded  by  the 
Central Bank’s PCAR directions of 31 March 2011. 

2/ In practice this was submitted to the Seanad as discussed in paragraph 21 of the MEFP, as the Dáil was dissolved owing 
to the elections. 

3/ Effective end-October 2011 and posted on November 8, 2011. 

82 

 
 
 
 
Table 2. Ireland: Quantitative Performance Criteria and Indicative Targets  
Under the Economic Programme for 2011–13 

31-Dec-11 

31-Mar-12 

30-Jun-12 

30-Sep-12 

31-Dec-12 

31-Mar-13 

30-Jun 13 

30-Sep-13 

Target1/  Outcome 

Target1/  Outcome 

Target1/  Outcome Target1/ Outcome  Target1/ Outcome Target1/ Outcome

Target 

Target 

(In billions of euro) 

Performance 
Criterion 

Performance  

Performance  

Criterion 

Criterion 

Performance 
Criterion 

Performance 
Criterion 

Performance 
Criterion 

Performance 
Criterion 

Indicative 
Target  

-22.3 

-21.0 

-6.9 

-5.7 

-9.6 

-8.7 

-11.4 

- 10.1 

  -13.2   

-12.3 

-3.2 

-1.8 

- 4.2 

- 4.8 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

0 

Indicative Target 

Indicative Target 

Indicative Target 

Indicative Target 

Indicative Target

Indicative Target

Indicative 
Target 

Indicative 
Target 

117.2 

115.7 

125.0 

123.0 

130.1 

128.2 

132.5 

130.0 

135.8  

133.7 

167.9

161.8 

171.1 

172.3 

1. 
exchequer 
balance 2/ 

Cumulative 
primary 

2.  Ceiling  on 
the 
accumulation  of  new 
external 
payments 
arrears  on  external 
debt  contracted  or 
guaranteed  by 
the 
central government 3/ 

3. Ceiling on the stock 
of  central  government 
net debt 1/ 

1/ Adjusted. 

2/ Measured by the exchequer balance excluding interest payments. Cumulative from the start of the relevant calendar year. 

3/ Applies on a continuous basis.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table 3. Structural Benchmarks Under the Programme 

Measure 

Date 

Status 

Financial sector policies 

Publish  an  update,  where  necessary,  of  the  2011 
Impairment  Provisioning  and  Disclosure  Guidelines  by 
end-May 2013 (MEFP ¶10, 9th review). 
Undertake a review of progress in addressing mortgage 
arrears (MEFP ¶12, 8th review). 

End-May 2013 

End-June 2013 

Conduct  a  forward  looking  analysis of operating profits 
(MEFP ¶11, 10th review)  

End-September 
2013 

Complete  a  preliminary  balance  sheet  assessment 
(MEFP ¶11, 10th review) 

End-October 2013 

Structural 
benchmark 

Structural 
benchmark 

Proposed 

structural 
benchmark
Proposed 

structural 
benchmark 

84