Kenny tells EU leaders exit from bailout will be ‘highly significant’ step for Ireland

Taoiseach Enda Kenny has told EU leaders the exit from the bailout in mid-December will be a “highly significant” step for the Irish people.

In his letter to his 27 European counterparts, Mr Kenny said ongoing preparations for the return to full market financing were a testament to the people’s resilience and to the loyal support of EU partners.

However, he placed great emphasis on the need for EU leaders to fulfil their pledge to break the connection between sovereign and bank debt.

The letter, seen by The Irish Times, also said discussion on the best options for Ireland in the wake of the bailout was "finely balanced".

Precautionary loan
This was an implicit reference to the precautionary loan programme, essentially an emergency safety net to be used if investors suddenly lose confidence in Irish debt.

The letter follows talks in Strasbourg on Tuesday between Minister for Finance Michael Noonan and EU economics commissioner Olli Rehn at which a credit line was discussed. Mr Noonan was in Frankfurt yesterday for meetings on the exit strategy with the European Central Bank and he travels next week to Washington for talks with the IMF. Crucial here are the terms on which any precautionary line of credit is issued. The EU authorities will apply policy conditions to any such scheme even if it is never used. However, the Coalition's objective is to minimise the impact of any conditions if it proceeds with such an arrangement.

There is confidence in Government circles that EU support can be achieved for the strategy of taking out a precautionary credit line or for the alternative approach of going it alone without such a facility.

Although the stalled drive to sever the link between sovereign and bank debt is a core element of the contentious “banking union” initiative, EU leaders remain divided over key elements of the plan. However, Mr Kenny insisted political leaders must still uphold agreements made.

“The recent stabilisation of sovereign borrowing rates in the union is a product of hard-earned trust – trust and confidence that the banking union will be completed on time, and confidence that momentum will be maintained on our shared jobs and growth agenda,” he said in his letter.

“These political commitments must be implemented. No time should be lost in building on the decisions reached in 2012 and earlier this year on banking union legislation.

“We must hold firm to our deadlines for agreeing the remaining legislation on deposit guarantees and on a single resolution mechanism.”

Mr Kenny said the Irish target for a budget deficit next year at 4.8 per cent of economic output was below the 5.1 per cent objective set by Europe.

Small surplus
He also noted the push to achieve a primary balance and a small surplus next year, meaning Dublin expects tax revenues to meet the cost of running the State when the national debt is excluded. "We are doing that notwithstanding our growth being much lower than anticipated," Mr Kenny said.