ESM chief warns Ireland over austerity row back
Klaus Regling says €3.1 billion adjustment is an ‘important next step’ for the State
Klaus Regling said that markets would be looking at Ireland’s budgetary progress as the country prepares to exit its bailout programme by the end of the year
Ireland’s adherence to a €3.1 billion fiscal adjustment in October’s budget is an “important next step” for the country, the head of the euro zone’s rescue fund has signalled, warning that a failure to implement agreed targets would “not be well-received” in Europe.
In an interview with The Irish Times, Klaus Regling, managing director of the European Stability Mechanism (ESM), said that markets would be looking at Ireland’s budgetary progress as the country prepares to exit its bailout programme by the end of the year.
“It is certainly one of the elements markets are looking at,” he said. “I think that at the end of the 11th review, it was very clear that another €3.1 billion fiscal adjustment as foreseen under current rules and as previously agreed with the authorities is the important next step.”
He also noted that any application by Ireland for a precautionary credit line from the rescue fund as it exits the bailout would have to be approved by the euro zone’s 17 finance ministers. “If the agreed target were not reached I’m sure that would not be well received,” he said.
Ireland will become the first European country to exit an EU-IMF bailout when its €85 billion bailout programme comes to an end later this year.
Minister for Finance Michael Noonan indicated last week that Ireland may apply for a precautionary credit line to help ease its return to full private market funding. However, Dublin is understood to be resistant to any programme that involves onerous conditions.
Mr Regling, who co-authored one of the first government-commissioned reports into the Irish banking collapse, declined to comment on the potential conditions that would be attached to a precautionary credit line, but said the instrument was available in principle.
Any precautionary credit line would be 12 months’ duration at a minimum, which could be extended twice, each time by six months. He added that Ireland should be able to exit the bailout without any need for support from the European Central Bank via its bond-buying programme, known as Outright Monetary Transaction.
Mr Regling also dismissed suggestions that the ESM fund could take Ireland’s problem tracker mortgages off its banks’ balance sheets.
“That instrument doesn’t exist at all for the ESM. And I don’t see an appetite among the euro area countries to create a new instrument.”
Negotiations between Ireland and its EU lenders on how best to exit the bailout are likely to intensify during the final troika visit in October, a period that will coincide with final preparations for next year’s budget.
Mr Regling said it would be up to EU political leaders to decide whether the ESM fund’s direct bank recapitalisation instrument should be applied retroactively to Ireland. and that he hoped Ireland realised it had received a lot of help already via low interest rates on the bailout loans and ECB support for the banking system.