Decision to go it alone a signal of confidence in our exit strategy
Opinion: The reality remains that tight budgets are de rigueur under EU rules
Michael Noonan with EU Commissioner for Economic and Monetary Affairs, Olli Rehn yesterday. Photograph: Peter Cavanagh
The decision to leave aside the option of a post-bailout credit line marks an unambiguous declaration of confidence by the Government in its exit strategy.
To be sure, the “clean break” approach is not without risk. But it strengthens the argument that economic sovereignty will be fully restored to its rightful owners when the rescue plan ends next month.
Although this is something of a glittering political prize for the Coalition, more important still is the fact that the State and the Irish people can stand again on their own without recourse to external aid.
If the symbolism of it all is crucial, the psychology is no less important.
The move to leave the bailout without a formal safety net avoids the unappealing prospect of taking on tough new fiscal policy conditions from external masters.
Even if this involved nothing more than a reinforcement of obligations on the Government to complete unfinished business from the bailout, there would be no move away from intrusive policy surveillance by international inspectors.
This is convenient politically, but it does raise the stakes greatly in the aftermath of the bailout.
“We certainly have the benefit of the doubt from the markets. You’ve got to be doubly convincing to do that, and we’re certainly very conscious of that,” said a senior Government source.
Thus the Coalition recognises it will be cautious and risk-averse in its economic policy.
While this rules out any return to bad fiscal habits, the reality remains that tight budgets are de rigueur under new EU rules.
The really big test will come in the second half of next year. With significant cash reserves already in place for the period immediately ahead, the Coalition will become more and more reliant on market financing as the reserves are run down.
This is an incremental process. Rather than seizing opportunistically on positive market conditions for opportunities to sell Irish debt, the National Treasury Management Agency (NTMA) will adopt a regular issuance schedule.
A further factor is a looming pan-European stress test on the banks by the European Central Bank, something which carries the danger of a demand for yet more capital for Ireland’s stricken lenders.
While banks are set to pass an ongoing mini-stress test which has been under way for weeks, next year’s examination will be appreciably deeper.
Banking union plan
What is more, the outcome will be scrutinised against the backdrop of progress made on Europe’s “banking union” plan. While real advances on that front would be helpful to Ireland’s cause, any absence of progress would not.
If all of that constitutes risk to the outlook, there is no such thing as a risk-free return to private debt markets after a period in no-man’s land.
Still, the sense remains that market confidence will have to be fully established at some point. If any credit line would have been for one year only, then the same issues teased out in recent weeks would still have to be teased out this time next year.