Ireland now expected to exit troika bailout unaided

Noonan says decision on exit strategy remains ‘finely balanced’

Minister for Finance Michael Noonan held his final meeting with senior figures from the EU and IMF yesterday in the Netherlands

Minister for Finance Michael Noonan held his final meeting with senior figures from the EU and IMF yesterday in the Netherlands

Wed, Nov 6, 2013, 09:48

Sources in Brussels now expect Ireland to exit the bailout without a backstop in place. Officials believe that if Ireland deploys a one-year credit line, it will confront the same issue of market confidence when that credit line expires in a year’s time.

With market conditions currently favourable, and Irish bond yields hovering at 3.5 per cent, it is seen as preferable for Ireland to return to fully fledged market financing now rather than at a later juncture.

A final decision on a request for a precautionary credit line may be made as early as next week, amid increasing signs that Brussels is prepared to back Ireland if it decides to exit its EU-IMF programme unaided.

Minister for Finance Michael Noonan held his final meeting with senior figures from the EU and IMF yesterday in the Netherlands, where he met the head of the group of euro zone finance ministers, Dutch finance minister Jeroen Dijsselbloem. It follows meetings with the European Commission, European Central Bank, and IMF over the last two weeks.

Hour-long meeting
Both finance ministers described the hour-long meeting at the Dutch finance ministry as “constructive.” While Mr Noonan said yesterday evening the decision on an exit strategy remained “finely balanced”.

Unlike three years ago, at the time of the Irish bailout when contagion across peripheral countries was a primary concern, the decoupling of Irish government bond yields from the yields of other programme countries such as Greece and Portugal over the last year is assuaging concerns about contagion should Ireland’s return to full private funding spark market unrest.

The fact that a request to draw down a precautionary credit line from the euro zone rescue fund, the European Stability Mechanism (ESM), would need parliamentary approval from a number of countries, including Germany, is also weighing on the decision.

EU commissioner Olli Rehn said yesterday that while the decision on an exit strategy was “by and large for the Irish Government”, Ireland was well-funded.

“The Irish sovereign is now well-funded with quite significant cash reserves that serve as a buffer,” the commissioner for economic and monetary affairs said, adding that Ireland was seen as “an economic turnaround,” with growth returning and improvements in the unemployment rate.

Mr Rehn said last month that Ireland had a “very good chance” of exiting the bailout without a precautionary credit line. Mr Noonan took some analysts by surprise last month when he told the Fine Gael annual conference that Ireland may exit the bailout without a backstop mechanism.

Sentiment in Washington
He repeated the sentiment in Washington last week following a meeting at IMF headquarters. Since then Irish bond spreads have narrowed, suggesting the prospect of Ireland exiting unsupported may not trouble investors. While Ireland is the first country to exit a joint euro zone-IMF rescue package – a landmark for the euro zone – a number of countries have exited IMF programmes without the use of a precautionary credit line.

With the final troika visit to Dublin due to finish tomorrow, Mr Noonan may make a decision before next Thursday’s meeting of all 17 euro zone finance ministers, in Brussels. Any decision on a precautionary credit line will be first brought to Cabinet in Dublin before being discussed by the euro group of finance ministers.