How is the European Union safety net going to help Ireland’s battered finances?
In fact the EU will be acting with three other partners in Ireland’s case, with the IMF chipping in, and bilateral aid coming from Britain and Sweden, neither of whom are in the eurozone.
A maximum 60 billion euros will be made available through the European Financial Stability Mechanism, a fund that is available to any of the EU’s 27 members to ensure the EFSM is not tapped out by any one member in need.
A second option, the European Financial Stabilty Facility holds government guarantees of 440 billion euros, available only to the 16 members of the eurozone.
To apply for assistance a member has to go through the European commission, and submit a draft financial reform plan. In Ireland’s case a four-year plan is about to be unveiled. Once everything is agreed on, EU officals say the money should start to flow three to five weeks after approval.
The Commission works hand in hand with the European Central Bank, which jointly draws up the conditions and then recommends EU Finance Ministers accept or reject the application.
The EU’s Finance Ministers thus have the final say.
The Commission then raises the funds on the bonds market, using the EU budget as collateral.
The IMF is only allowed to come into play after an applicant informs the Commission. The IMF participation is designed as another fail-safe source of cash to prevent the EFSM funds being exhausted by any one nation. But tough strings are likely to be attached.
In Ireland’s case the IMF’s man has been in Dublin for several weeks already, and along with the EU he may insist on even stricter conditions like tax increases and sharper spending cuts.