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28 November 2010 By Neil Unmack Follow @unmack1

The EU/IMF bailout has some marketfriendly measures: no haircut for senior bank creditors; and longterm financing. But sovereign bondholders could face haircuts after 2013. There’s not much to stop contagion to Portugal and possibly Spain.

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The European Union and International Monetary Fund and Ireland have agreed terms for an 85 billion euro emergency loan for the country and its banks. Ireland will fund 17.5 billion euros of the loan through its National Pension Reserve Fund and other domestic cash resources. The IMF will lend 22.5 billion euros. The remaining funds will be split between two European aid programs, the European Financial Stability Mechanism (EFSM) and European Financial Stability Facility (EFSF), and bilateral loans.

The European Commission also provided details on its planned sovereign default resolution mechanism, which will come into force when the EFSF expires in 2013, called the European Stability Mechanism. The mechanism will provide for a "case by case participation of private sector creditors," when aid is provided, the Eurogroup said in a statement.

European government bonds will include collective action clauses to make majorityagreed debt restructurings legally binding. The clauses will be included in government debt from June 2013 onwards. Also, funds provided through the ESM will rank senior to private sector creditors.

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