Impact of EU/IMF Bail on Economic & Social Policy of Ireland

Introduction1

Discussion2

Bailout program2

Impact of Bank Restructuring and Reorganization4

Impact on Fiscal Policy and Structural Reform5

Taxation5

Cut on Spending6

Impacts on Social Policy7

Conclusion9

References10

Impact of EU/IMF Bail on Economic & Social Policy of Ireland

Introduction

The aim of this paper is to assess and evaluate the impacts that were caused on the social and economic policy of Ireland from the IMF/EU bailout program that started in 2010. From the period of 1993 to 2007, Ireland economy was growing massively, and the economic growth was termed as Celtic Tiger due to the performance. Before the global financial crises, Irish banks loaned money to people who could not pay back. Due to availability of loans at cheaper rates, people invested in property and the race among construction industry started. This led to increase in prices of housing (Hill & Smith 2011, pp. 235). House owners made massive profits but as the housing bubble burst, spending by consumers decreased sharply. In late 2010, crisis sprung in Ireland when the bust occurred in the banking sector. This led to infect the public finances and yields on bonds also soared. In order to manage the debt markets, a bail out of €68 billion was announced for Ireland. After the two years bail was granted, the conditions of market improved. The government was able to issue bonds again as the economy recovered. The banking sector faced downsizing and was recapitalized (Hartzell et.al 2010, pp. 339-356).

Discussion

Bailout program

In order to assist Irish government in recovering the economy, Member states of European Union agreed for the provision of a bailout program. Countries that granted the bilateral loans were Denmark, UK and Sweden (Hartzell et.al 2010, pp. 345). Along with these countries, International Monetary Fund provided the loan from its Extended Fund Facility that grants funds only in specific conditions. The program included funding from two European stability authorities. The funds were generated from Financial Stability authority and from the Financial Mechanism authority. The purpose of this bailout program was to financially assist the Irish economy. Through external financing, it was possible to manage sustainable growth of the country (Storey 2010, pp. 8). The bailout program also ensured that the banking system of Ireland starts functioning properly and in a healthy way. The whole bailout program can be broken down into following components as fund providers:

EFSM which stands for European Financial Stability Mechanism provided €22.5 billion.

International monetary fund organization provided €22.5 billion and

€22.5 billion funds were provided by the European Financial Stability Fund which is also termed as EFSF.

The bailout package provided financial support for below mentioned purposes:

Banking system was provided with €35 billion

€10 billion were reserved for the immediate recapitalization

For implementation of contingency plans, €25 billion were provided

In order to cover the state finances, €50 billion were granted (Leahy et.al 2012, pp. 23)

Ireland joined the membership of IMF in 1957. Many global justice groups have been continuously calling for reforming the under-developed democratic governance. IMF policy conditions on the country produced many damaging effects on the economy ...