The Irish stress tests revealed that Irish banks need an additional €24B of capital injection, which was close to expectations and falls within the amount of capital the bail-out package had reserved (€35B). The total bill for the clean up of the banking sector mess is now about €70B, approaching 50% of GDP. The Irish government will restructure the sector and merge the main four banks into two centred on Allied Irish and Bank of Ireland. All may end up nationalized. There had been speculation that the ECB would put a medium term funding facility into place for the Irish banks, but apparently, there was resistance in the Council and earlier remarks of ECB’s Stark indeed pointed to resistance. However, the ECB declared officially that it would continue to accept Irish sovereign debt as collateral regardless its credit rating and promised banks continued access to liquidity. The Irish government promised to deleverage and downside the balance sheets of the banks. According to the press, the Irish government would drop its threat to impose losses on senior unsecured bonds in both remaining banks. The Irish central banker suggested that a lower rate on the bail-out package was a possibility over time and added that its ability to meet its deficit and debt targets would depend on a return to growth. We need to examine more closely the arrangement and have more still missing information to judge whether it might put Ireland on the road to recovery. We think that the market will be cautious in its attitude and do expect the spread to remain (unsustainable) high for the time being. It might be that the financing of the Irish banks might again entirely go through the ECB repo-operation (instead of partly via the ELA). This might pose problems if the ECB would decide to go back to the variable rate procedure (in QE-3?) or does it mean that the ECB will be obliged to continue its Full Allotment procedure for longer.