After Greece: Ireland's next move
Hence the view among close observers that any such move would be politically unsound, financially dangerous and, ultimately, self-defeating. To renege on debt would compromise the credibility of the Government as borrower, the very thing Dublin needs to cultivate if it is to free itself of the yoke of the bailout next year. To call the ECB’s bluff might threaten well in excess of €100 billion in emergency support for the Irish banking system. It is because of such support that the banks function.
In the end, this is all about reliability, as the salutary case of the former Greek premier George Papandreou illustrates. A year ago he was treated to strident public diktats from Merkel and the then president of France, Nicolas Sarkozy, for having the gumption to propose a referendum on the bailout. Critics bristled at this extraordinary intrusion into Greek affairs, but Papandreou’s international standing sank, and he was replaced by an unelected technocrat.
A similar fate befell the former Italian leader Silvio Berlusconi after he reneged on his promises to the ECB to assert control over his wayward public finances.
“I would be very much of the view that Europe does not operate on an antagonistic basis. For sure, the right strategy is to frame the case as what is best for Europe,” says Prof Philip Lane of the department of economics at Trinity College Dublin.
The new Greek arrangement comes at a pivotal moment for Ireland. It is two years since the disastrous banking guarantee inexorably led the faltering State into the clammy embrace of the EU-EC-IMF troika, meaning the Government must secure its return to private markets within 12 months.
Attitudes towards the bedraggled Irish have improved markedly since the dismal days at the outset of the bailout, but all the praise in Europe will not pay off the debt.
“I believe that what Noonan has done so far is very good, and we know where the problems lie,” says a participant in the talks in Brussels. Yet a solution acceptable to all remains elusive. Not only is Ireland’s national debt huge, thanks to the bank rescue and large ongoing budget deficits, but it is still expanding rapidly. The latest Department of Finance forecast suggests the general Government debt, representing the totality of the State’s gross debt, will reach €192 billion next month. This sum is four times greater than in 2007, before the eruption of the crisis. A further €34 billion will be borrowed between 2013 and 2015.
The European Commission estimates that Ireland’s all-important debt-to-GDP ratio, which measures public indebtedness as a proportion of economic output, will reach 122.5 per cent next year. (This is slightly higher than the Government’s own estimate in the table, right.) This is above the 120 per cent threshold the IMF generally considers unsustainable. The ratio will drop a little in 2014 but will remain very close to 120 per cent. In Brussels this month the economics commissioner, Olli Rehn, did not reply to a question about whether Ireland’s debt could be considered sustainable without relief on the bank rescue.
The sense remains that Ireland is not really a priority for Europe at the moment. Although the debt question has assumed totemic status in unending domestic debate, that’s not the case elsewhere. At the highest levels in Europe, it is well recognised that leaders move only when forced into emergency action. At a time of concern about the deteriorating Franco-German relationship, anxiety about a possible British exit from the EU and lack of clarity about Greece, Ireland is far from the top of the list.