Davy Research |
|
Market Comment
IMF calls for ELA funding for IBRC to be extended and for public sector pay cuts
18 June 2012
Conall Mac Coille
Stock indices are set to open up sharply this morning in response to the Greek election results. With 99% of the votes counted, the pro-bailout parties New Democracy and Pasok are expected to have collected sufficient seats to form a majority in parliament.
Overnight, increased appetite for risk assets drove Asian markets higher, with the Nikkei up 1.8%, ASX 200 up 2% and Hang Seng up 1.1%. Equity index futures for the Euro Stoxx 50 Pr index point to a 2% rise when markets open this morning. The euro is currently trading at $1.2715, its highest level since late May.
On Friday (June 15th) the IMF published its sixth review of Ireland's bailout package, using more forceful language to call for greater European support for the programme. Specifically, the IMF called for the term of the promissory note payments to IBRC and associated Eurosystem (ELA) funding to be extended.
In addition, the IMF called for measures to place the Irish banks' legacy assets, principally loss-making tracker mortgages, into a vehicle that does not rely on market funding. In its review, the IMF explicitly linked support measures on Ireland's promissory note payments, and loss-making tracker mortgages, as an important step in helping Ireland to regain market access with the €6bn of longer-term funding currently scheduled in H1 2013 under the current programme.
On public sector pay, the IMF advocated further wage reductions. This was in contrast to the Irish government's focus on controls on hiring and savings in non-core pay. The IMF noted that the net exchequer pay and pensions bill is currently expected to fall by just 0.4% of GNP by 2015 (relative to its 2008 level) – in its view, a relatively modest adjustment.