Troika raises possibility of 'comfort funding'
The EU-IMF troika has raised the prospect of a new line of “comfort funding” for the Government to ensure there is no disruption to the public finances at the end of the bailout.
With another troika mission due in Dublin next week to review the rescue programme, the lenders want the Government to tackle the remuneration of the public servants at the top end of the pay scale in talks on a second Croke Park deal.
This reflects concern within the troika that it was wrong for the first deal to provide equal protection to the pay of public servants on low and very high salaries.
The troika is also likely to raise the perceived failure of Allied Irish Banks and Bank of Ireland to address adequately loan defaults in their buy-to-let and residential mortgage books.
Under scrutiny in advance of the 10-day mission, which begins next Tuesday, is whether additional steps should be taken to ensure a smooth exit from the bailout in the autumn.
This question centres on the possibility of the troika providing a new line of credit to the Government as it attempts a full return to private debt markets.
Dublin would not necessarily draw down such credit but the fact that it was available might encourage private investment as there would be no risk of a funding shortfall if the Government did not sell enough debt.
An alternative, also being examined by the troika, is for the Government to proceed without the benefit of an additional safety net in order to demonstrate confidence in its debt to potential investors.
Sources close to talks between the troika and the Government said the international lenders are not at this point recommending any particular course of action. A new “technical paper” from the troika on exiting the bailout simply presents these alternatives as options for exploration, the sources said.
The Government is keeping its options open. At the World Economic Forum in Davos yesterday, Minister for Finance Michael Noonan said the paper would include a “menu of options” and was likely to include “backstops” to reassure markets but which might not be needed.
“We’d like to see a range of options and then take advice on the ones that would best suit our circumstances,” he said.
Mr Noonan and Taoiseach Enda Kenny had “very positive” talks in Davos yesterday with IMF managing director Christine Lagarde, who plans to visit Dublin on March 8th. The Minister said he asked Ms Lagarde for “high-level IMF assistance” in drafting an exit plan for Ireland from the bailout.
The discussions come as talks continue on bank debt relief and an extension of the maturity of bailout loans.
There is concern within the troika to avert any situation in which any Irish or European leaders are seen to be dictating to the European Central Bank to recast the Anglo Irish Bank promissory note scheme.
The troika fears this would undermine the ECB’s independence, threatening the prospect for a deal and raising the risk of a legal challenge.