Decision to exit bailout without precautionary credit ‘fully supported’ by EU-IMF

Dijsselbloem says Ireland’s exit ‘proves these programmes work’ at meeting in Brussels

Thu, Nov 14, 2013, 21:10

Minister for Finance Michael Noonan has said the Government’s decision to exit the three-year bailout programme next month without seeking precautionary credit funding is “fully supported” by European lenders and the IMF.

Speaking to reporters as he arrived in Brussels for a meeting of euro zone finance ministers, Mr Noonan said the decision was “the best interests of the country” and the “time was right” to return to full market access unaided.

Mr Noonan phoned European Central Bank president Mario Draghi, European economics commissioner Olli Rehn and IMF managing director Christine Lagarde this morning ahead of the Government’s announcement.

“We think that the time is now right for exiting the programme and that may not always be so [...]If we took a precautionary programme we would have to take the decision we made today next year,” the Minister said pointing out that there was no guarantee that the situation would be as benign in a year’s time.

The fact that Ireland would not have to draw on the funds next year as it is already funded into 2014 was also a factor.

“If we took a precautionary programme it was clear that we would not have to use it in 2014. Then the consideration would be, will we take it so that we have an option of extending it?” he said.

Asked about the impact of the decision on the Irish people, MrNoonan said it was a question of sovereignty.

“We spent an awful lot of time getting our freedom and getting the authority to run our own affairs, and there’s not much point in having political freedom if you do not have economic and financial freedom .”

Discussions will now commence on the precise terms of post-programme surveillance for Ireland, with two review missions per year envisaged.

However, euro group president Jeroen Dijsselbloem stressed that while “specific risks and reforms” would be considered, no “measures” would be involved.

A number of euro zone figures today stressed that Ireland’s exit from the bailout was proof that the euro zone’s response to the crisis has worked. Ireland’s exit “proves that these programmes work and deliver when they are successfully implemented,” Mr Dijsselbloem said.

Despite the affirmation of the euro group’s strong support for Ireland’s decision, there had been differences of opinion between the various troika members on the best strategy for Ireland.

With Ireland scheduled to take part in next year’s European banking stress tests, the European Central Bank in particular is understood to have had concerns about problems in the Irish banking system and favoured the use of a precautionary credit line.

In contrast, the European Commission advocated a so-called ‘clean exit’ , with Mr Dijsselbloem supporting an early decision on the issue.

In a statement today IMF managing director Christine Lagarde said Ireland was in a “strong position” in terms of its bond yields and sizable cash buffer, though the statement made no mention of the decision to exit the bailout without a backstop. “We look forward to continuing to work with the authorities as they address the challenges that remain.”

‘Right decision’

Taoiseach Enda Kenny told the Dáil this morning that it was the “right decision for Ireland”, and the Government would publish a new medium-term economic strategy in the wake of the announcement.

Most Cabinet Ministers were in the Dáil along with a large turnout of TDs for the special announcement.

The Government had engaged extensively with international institutions and partners on Ireland’s exit strategy and they had indicated “we will continue to receive their strong support”.

“It does not mean any windfall of cash and will not mean that our economic and financial challenges are over.”

Mr Kenny said despite the economic challenges “that people will continue to face in their daily lives we will set out a path to a brighter economic future for our people; a path from mass unemployment to full employment, from involuntary emigration to the return of thousands of our people who have had to leave to other countries to find work. I thank the people for their diligence and their commitment.”

The Taoiseach added: “Nobody should doubt the Government’s commitment to finish the job that we started when we took up office. Today is just the latest step on that journey, a significant step indeed, but also just another step towards our ultimate objective of getting Ireland working again.”

But Mr Kenny insisted Ireland would exit the bailout in a strong position.

He said German Chancellor Angela Merkel had confirmed “this is a decision for Ireland to make” and she was open to finding ways to improve Ireland’s economy including access for Irish small and medium enterprises.

He said Ireland was eligible to access the EU €500 billion funding backstop.

Tánaiste Eamon Gilmore described today’s decision as “historic, important and welcome”.

He said investors had increased confidence in Ireland, and international confidence in Ireland had improved considerably.

However, Fianna Fáil leader Micheál Martin described today’s developments as a “politically stage-managed event”.

Ireland will now return to full private market funding without the help of a precautionary credit line next month.

Any decision on a bailout exit strategy needed Cabinet approval, before going to the euro group for discussion. At the quickly-scheduled Cabinet meeting, which began shortly after 9.30am, Mr Noonan sought and received Government approval to exit the bailout programme without the help of a precautionary credit line.

The meeting of Ministers this morning, which was not flagged, was a strong indication that Mr Noonan will seek formal backing from fellow euro zone finance ministers for an exit without an external backstop and will rely instead on the €25 billion in reserves being held by the National Treasury Management Agency.

The Government’s view is that such an unaided exit will bolster market confidence in the State’s ability to manage the economy without assistance from international bodies or lenders.

The rationale is also supported by Brussels, especially in the context of the current conditions on international markets, where interest rates for Irish sovereign debt have fallen to rates below those of countries

The Government’s decision to exit the bailout programme without a credit line has been was met with caution by some financial analysts.

Juliet Tennant, economist at Goodbody capital markets, said opting for a safety net would have been preferable.

“The Government is indeed in a comfortable funding position [BUT]we would have preferred to see the Government apply for a precautionary credit line; not only for the safety net it would have provided but also the additional external surveillance that would have ensured that momentum in the implementation of the outstanding bailout programme reforms would be maintained,” she said.

“However, Ireland’s decision to exit alone shows confidence in its ability to fund itself and may well be viewed favourably by the ratings agencies, particularly Moody’s.”

There was little market reaction immediately following the announcement, with Irish 10-year bonds trading at 3.533 having opened slightly higher at 3.556.

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