THE FIRST review of the EU-IMF bailout currently taking place will give the new Government a formal opportunity to modify the terms of the deal, the head of the Department of Finance told the new Minister for Finance in a briefing note.
Kevin Cardiff, secretary general of the department, told Minister for Finance Michael Noonan that there was scope for him and the new Government to modify aspects of the bailout in talks with the EU, IMF and European Central Bank.
“In this regard, the forthcoming first policy review mission, tentatively scheduled for early April, will provide a formal opportunity soon for modification,” he said.
Briefing documents to the Minister released last night also show concern within the Department at the coalition’s promised new universal health insurance system.
“The introduction of a universal health insurance system (whether a public or private insurance model) could push up the cost of public health care on the assumption that there would be a corresponding expectation of universal entitlement to primary, community and hospital care,” the department’s health briefing read.
It also signalled that the development of some of the priority healthcare capital projects may not be affordable in the original timeframe set out.
The Department has indicated its preference for reviewing existing arrangements which provide eligibility for health services and the introduction of new mechanisms which would require patients to meet some of the costs themselves.
The Department says it wants to see savings of €420 million generated in the health budget as well as staffing reductions of almost 9,000 wholetime equivalent personnel by 2014.
In a briefing note on the economy, Mr Cardifff warned Mr Noonan that his policies must recognise Ireland’s dependency on the ECB.
“It is essential that policies recognise our dependency on the ECB and the implications this has for our room for manoeuvre and capacity for independent action,” said the note.
The admonition is the only paragraph in bold in the document.
Mr Noonan was criticised last week for refusing to entertain passing bank losses on to senior bondholders in AIB and Bank of Ireland. The ECB is firmly opposed to this.
Officials told the Minister that burden-sharing with bondholders has “some limited potential” to minimise the cost for the country of future banking costs.
The document refers in a footnote to €16.4 billion of unguaranteed, unsecured senior bonds of which €3.75 billion of the total was in Anglo Irish Bank and Irish Nationwide Building Society.
Mr Noonan was also told that the domestic economy may be weaker this year than thought and this might have “negative consequences” for our fiscal position.
Large sections of the briefing notes, which were published on the department’s website late last night, have been blacked out.
A briefing note on the banks shows the Government considered reorganising the banking sector by creating two new banks from the “core” assets out of AIB and Bank of Ireland and the good parts of the other banks.
Under this option all other bank assets would be left in a series of vehicles to be run down over time.
The option was outlined in a briefing note drafted by senior department official Ann Nolan. It was considered a possibility but the “most feasible” option was one chosen last week by Mr Noonan.
Ms Nolan ruled out the adoption of “deleveraging” plans to offload excess loans from the banks without any further reorganisation of the banking sector.
This was “not radical enough for confidence that will help banks to recover”, she said.
Another option to accelerate the disposal of excess assets at the banks to make them self-sufficient was also ruled out as it would lead to “a significant capital hole and would therefore be very expensive for the State”.
It has since been decided to create two new “pillar” banks out of Bank of Ireland and a merger between AIB and EBS building society.