22.06.2015 - The Directorate-General for Economic and Financial Affairs (DG ECFIN) has published an ex post evaluation of Ireland's economic adjustment programme which ended in December 2013. The report, the first of its kind, assesses the design, implementation and outcome of the programme. It finds that the programme consisted of appropriate measures and reforms to address the economic and financial challenges that Ireland was facing in 2010. The programme remained flexible and was able to adapt to unexpected events, supporting the strong implementation of reforms.
The report concludes that Ireland made significant progress on financial sector repair, fiscal consolidation and the return to sustainable growth. Consequently, Ireland regained access to the financial markets at sustainable rates. By the end of the programme, confidence in Ireland and its financial system had been restored. At the heart of this success was the role of Irish authorities and their positive engagement with the European Commission, the European Central Bank and the International Monetary Fund (IMF). The Irish authorities were proactive in putting the reform programme together, presenting their National Recovery Plan alongside their request financial assistance in November 2010. The economic adjustment programme was able to combine the Irish reform agenda with the credibility and experience that came from the involvement of the partner institutions. Over the programme years the Irish authorities remained committed to the programme's implementation, and displayed strong ownership in most policy areas.
Since the end of the programme Ireland has posted the highest growth rates in the euro area. This year GDP is forecast to expand by 3.6%. The programme avoided sharp across-the-board reductions in social support and Ireland's social safety net continued to function effectively, though deprivation has risen. Unemployment, which climbed to 14.7% in 2011, has fallen steadily since 2013 and is set to decrease to 9.6% in 2015. Despite remarkable achievements, challenges remain, such as high levels of long-term unemployment and youth joblessness.
The report published today reflects the strong commitment of the Commission to evaluate all activities with a significant impact on society and the economy. It was prepared by staff under conditions of independence: notably, the unit whose staff carried out the evaluation was separate from the operational unit in charge of the Irish programme and post-programme surveillance.
Important conclusions can be drawn from the ex post evaluation of the Irish financial assistance programme. A few examples:
The Irish programme was supported by a financial envelope amounting to €85 billion. Nearly half of this was financed by the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). The remainder came from the IMF, bilateral loans (Denmark, Sweden, United Kingdom), and Irish national funds. The financial envelope rightly included sizeable contingency reserves, reflecting the potential financing needs given high financial market volatility and uncertainty about the actual capital needs of Irish banks. As the adverse scenarios were gradually dispelled and once market access had been sustainably restored, explicit reassessment of whether the full financial envelope needed to be disbursed would have been warranted.
The financial sector measures rightly focused on bank recapitalisation and restructuring and ultimately on breaking the link between the health of the financial institutions and the sovereign.
Programme conditions on fiscal consolidation and fiscal governance were necessary to ensure sustainable fiscal policies and to correct the double-digit deficit. Ireland's fiscal targets envisaged in the programme were realistic and were met with a margin. This helped to generate a virtuous circle of good news and credibility. This year the deficit is forecast to fall below 3% of GDP for the first time since 2007. The reforms made to fiscal governance should support durable debt reduction and temper the risk of pro-cyclical fiscal policy choices, but will have to prove their value in practice.
The structural reforms in the programme were limited, as Ireland is a relatively competitive and flexible economy. However, in a context of strong overall ownership and compliance, the implementation of structural reforms has been less consistent than other parts of the programme. This reflected a mix of technical, legislative and political challenges, the relatively low perceived priority of structural reforms, and their potential impact on vested interests.
For more information, please see:
Press contacts: Johannes BAHRKE