Exiting the bailout is one thing, staying clear of trouble is another
Opinion: Concern remains that any unexpected call for new capital could undermine the game plan
No clear way forward is likely to emerge until a new government has emerged in Germany. Photograph: The New York Times
The Government is poised to pass its final bailout review, but troika inspectors remain concerned about an all-too familiar list of problem items. While the final round of rescue loans will be released as planned, we are not exactly in the realm of straight-As for the most diligent member of the bailout class
At issue primarily is anxiety that the banks might need yet more money, that the economic forecasts underpinning the budget might prove overly optimistic and that more should be done to encourage unemployed people to pursue job opportunities. There are further concerns about the languid pace of reforms in the health service and the legal sector.
All of this feeds into protracted debate in Dublin and beyond on the merits of taking on a post-bailout credit line to guard against any sudden return of turmoil. Within the troika the sense is that Taoiseach Enda Kenny would rather stay well away from the tough fiscal policy conditions that would be tied to such a credit facility. Seen through troika eyes, this a political stance largely. If Kenny bills the end of the bailout as the moment at which he regains Irish economic sovereignty from external interlopers, the acceptance of new conditions might throw a different light on things.
At the same time, Minister for Finance Michael Noonan is perceived to be more pragmatic on the credit line question.
Although the European Central Bank and the International Monetary Fund are in the vanguard of those who believe the safest course by far is to seek a precautionary credit line, attitudes are more relaxed within the EU Commission. The favoured approach there is for a “clean-break” exit without a credit line.
Still, the argument is unlikely to be settled until a new German government takes office. The reality right now is that German officials have no real mandate to explore any further aid for Ireland. Even if Chancellor Angela Merkel is willing to do a deal eventually, it’s not going to happen until a new coalition is in place. One of the main points of contention is the necessity for Bundestag approval for any Irish credit line. This has potential to prompt yet another round of German pressure on Ireland’s corporate tax regime.
Big threat to exit plan
Whatever the eventual outcome, the sense remains in troika circles that risks within Ireland itself still constitute a big threat to the exit plan. This is at variance with the official narrative that the major danger for Ireland is concentrated in the wider euro zone, the clear sense being that the restoration of relative calm does not mean the debt crisis has been resolved.
The big worry in relation to the Irish banks, which have been bailed out to the tune of €64 billion by taxpayers, centres on a stress test next year by the ECB. This will be the third pan-European test but the first under ECB stewardship. The previous two examinations are widely deemed to have failed the credibility test, hence pressure on the ECB to ensure the new round does not fall short. Any weakness in the test criteria would be damaging to the ECB’s own reputation so a rigorous exercise is in prospect.