Financial market conditions have further improved, with 10 year bond yields reaching a new all-time low of 2.4 percent, aided by recent ECB policy decisions and ratings upgrades. Market funding costs of Irish banks have also declined, supporting improved profitability, but credit to highly indebted households and
Executive Board Assessment2
The Executive Directors welcomed signs that
Directors underscored the importance of steady fiscal adjustment to put the budget on a sound footing and debt on a firmly downward trajectory. They welcomed the authorities' determination to adhere to the aggregate expenditure ceiling this year, while noting that additional consolidation should not be implemented if growth disappoints. Directors considered it appropriate to anchor next year's budget plans on the quantum of adjustment rather than the headline deficit to protect hard-won credibility while avoiding procyclical policy responses to revisions in growth projections. Directors endorsed the goal to reach budget balance in the medium term and stressed the importance of identifying measures to achieve this goal in a growth-friendly manner that protects the most vulnerable.
Directors highlighted the need to maintain supervisory pressure on banks to durably resolve nonperforming loans and restore lending capacity. Stronger efforts should focus on a timely resolution of distressed mortgages and SME loans, and should be broadened to include impaired commercial real estate loans. Directors looked forward to the results of the ECB's ongoing Comprehensive Assessment, and agreed that any identified capital needs should be addressed promptly. Should recourse to private capital prove insufficient, public support, including from a common euro area backstop, could be needed, and the possibility of direct recapitalization by the European Stability Mechanism should not be excluded.
Directors encouraged further efforts to help the long-term unemployed return to work by improving engagement with jobseekers and ensuring that training meets labor market needs. Noting that the recently established
1 The central objective of PPM is to provide for closer monitoring of the policies of members that have substantial Fund credit outstanding following the expiration of their arrangements. Under PPM, members undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm
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