He said that Ireland faces two main problems in its current financial balance sheet. First, it has too much debt, public and private. Second, there is a market perception of significant tail risk to the debt, especially related to the banks. It is these two problems, which are obviously interlinked, and which have both been growing in the course of the past year, that have led to the market’s reluctance to provide continuing funding at reasonable rates of interest.
By making an alternative line of funding available, the provision of financial support from EU partners and the IMF under the Programme buys time for Ireland to reduce these two problems. It does not itself reduce them. In particular, the financing provided is not structured to reduce the tail risks – that would have been beyond the current scope of the funds from which the financial support has been sourced.
© BIS - Bank for International Settlements
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