patrick honohan : ireland ’ s eu - imf programme – delivering what it says on the tin address by mr patrick honohan, governor of the central bank of ireland to the european commission dg - ecfin conference, dublin, 10 january 2014. * * * accompanying charts can be found at the end of the speech. introduction the eu - imf programme of financial support for ireland, negotiated in november 2010 and with the final tranches of lending being completed about now, delivered what it said on the tin. amid turbulent market conditions, it provided a safe harbour into which ireland was able to retreat, in order to clarify its ability and determination to deal with the severe financial problems that had so destructively erupted during the global financial crisis in september 2008. those problems had their origin in the property bubble that had already begun to deflate a little earlier, and which had not only generated the huge latent banking losses that have been so much discussed, but also incubated severe fiscal and macroeconomic imbalances. the key to the return of market confidence to the extent that now exists has undoubtedly been rigorous adherence to fiscal goals. over the three years, a continuation of the momentum of fiscal adjustments already initiated in 2008 has brought the public finances back within striking distance of eu norms. the debt - to - gdp ratio has reached a peak and is on target to fall in the coming year. economic growth, albeit modest, has returned on a broad front ; both full time and part - time employment have been growing for many months now. residential property prices in the capital have bounced back a little from their lows of two years ago, and have on average been broadly stable in the rest of the country also for some months. later i will speak a bit about how far the economy is nevertheless away from where we need it to be. but it cannot be denied that, reflecting both policy and general economic conditions, market confidence in irish creditworthiness is higher than at any time since well before the greek crisis developments of may 2010. it was not always obvious that this restoration of market confidence was going to work out. the imf staff appraisal of the initial programme proposal in december 2010 emphasised that the risks were high. and, after the programme began, the euro area slipped into a second dip recession which had its effect in slowing the irish recovery. the cumulative change in gdp, consumption and employment over the three years may have been as much as 2 percentage points lower than

certificates of deposit, and notes as well as “ own - use ” bonds issued with a government guarantee and either held as an asset or employed in repo transactions. so there are a number of definitional complexities here. bis central bankers ’ speeches indeed, the textbook first steps : triage the viable banks from the nonviable ; recapitalise the former, and resolve the latter ; were hampered both by the straitjacket created by the guarantee, and by the potential scale of needed recapitalisation, and its threat to the sovereign. this meant no asset fire - sales, and the target, ultimately achieved, of sharply reducing the loan - to - deposit ratio was kept under review, not least to try to prevent the outbreak ( frequently threatened ) of a destructive deposit price war. on the other hand, for example, the other side ’ s insistence that deposits should be promptly transferred out of the two fatally damaged banks, anglo and inbs, actually suited the authorities ’ intention to wind these entities down as soon as the guarantee ( which had effectively precluded such action ) had ended. had there been sufficient fiscal headroom, or if the damage had been limited to a segment of the banking system, instead of infecting it all, more drastic de novo approaches to establishing a well - functioning banking system might have been available options. in the event, even injecting the proposed amount of capital in mid - 2011 presented fiscal risks. although seen as newly flush with capital, the banks still lacked the confidence of the market, which saw the fiscal situation as an over - arching threat to the banks. paradoxically, the attempt to strengthen the banks by sharply recapitalising was sufficiently credit negative for the sovereign as to limit at first improvement in the banks ’ access to the market. only after sufficient further consolidation of the fiscal position ( and a stabilisation of the wider situation in the euro area ) did the market ’ s assessment of the creditworthiness of both sovereign and banks improve. that said, other parts of the banking repair have taken much longer than expected. even with troika pressure the complex bankruptcy law reforms have come slowly ; and on the ground, the mortgage arrears and wider impaired assets problems are only now showing clear signs of coming under control. these represent the major unfinished business as ireland exits the programme. progress is being made, and more is needed before the banks can be regarded as restored to fully effective and self - relian