The “Bailout”

Ireland has negotiated external funding of €67.5 billion, of which €22.5 billion is coming from the IMF, €22.5 billion is coming from the EU’s European Financial Stability Mechanism, and €17.7 billion is coming from the European Financial Stability Facility.

Bilateral loans from the UK, Sweden and Denmark would contribute the final €4.8 billion.

The European Union/International Monetary Fund is a very bad deal.

In October 2010 eurozone banks withdrew €77.4 billion from Irish registered banks. Another €17.7 billion was withdrawn by banks in the US, Japan and Switzerland. This includes banks in the IFSC.

By the end of November 2010, the ECB had lent €138 billion to our banks.

The Irish Central Bank lent a further €51 billion

In 2010, non-resident banks pulled €69 billion from domestic banks. The ECB lent domestic banks €97 billion in 2010.

The EU set up the European Financial Stability Facility (EFSF) to deal with the Greek crisis last year. This is a AAA rated investment company registered in Luxembourg guaranteed by eurozone members. Ireland pays more than 6% for EFSP cash. This is expensive money because to get €17.7 billion by paying €22.5 billion due to an arrangement fee and a +3% profit over cost of funds over seven years. This also covers the default insurance risk of the fund.

Ireland has to pay interest at 5.7% on €22.5 billion (including a profit margin of 2.925%) but only receives €17.7 billion. – NOT A GOOD DEAL –

The IMF money is at 5.55%.

€35 billion of bailout cash is for the Irish banks with €12.5 billion from the National Pension Reserve Fund.

The pretend objective of the bailout is help Ireland get back into the commercial bond market but it is now clear with our 10 year bond yield back at 9.8% that this is unlikely to happen.

What we need to do is to close the fiscal gap by a mix of increasing taxation and cutting spending. Then we need to negotiate our interest rate position. Angela Merkel has helped by suggesting a low interest rate for countries like Ireland and that new bank bond holders be burned in similar situations after 2014.