Political not economic considerations dominant in bailout exit decision

Opinion: A backstop arrangement would have led to debates in many national parliaments in Europe

Angela Merkel’s likely coalition partners in the SPD have adopted an unsympathetic stance towards Ireland.

Angela Merkel’s likely coalition partners in the SPD have adopted an unsympathetic stance towards Ireland.


Politics rather than economics appears to have been behind the Government’s decision to exit the EU-IMF bailout without a precautionary credit line.

Only two months ago Minister for Finance Michael Noonan spoke publicly about his hopes that a credit line of €10 billion could be agreed without significant new conditions being attached.

Something important happened in the meantime to change Noonan’s mind. On Thursday he put forward a range of plausible arguments as to why a credit line was not needed and he even argued that that it would make no sense for Ireland to have such a backstop at this stage.

So why the big change of mind since September? Economic conditions have not changed appreciably over the past couple of months, while the theory that stringent new conditions might have put the Government off have been dismissed by Minister for Public Expenditure and Reform Brendan Howlin, who said there were no serious negotiations on that front.

The only conclusion is that the decision was made on the basis of political considerations in Dublin, Berlin and Brussels.

One of the key factors seems to have been the fact that a backstop arrangement would have had to be debated in national parliaments around the Europe. In particular, the prospect of the Bundestag debating what conditions the Irish should be subjected to was not an inviting prospect for the Government.

The hard and unsympathetic stance towards Ireland currently being adopted by the German socialists in their coalition negotiations with Chancellor Angela Merkel did not augur well for the kind of debate that might occur in the Bundestag.

In the Dáil and in media interviews on Thursday the point was made repeatedly that Taoiseach Enda Kenny was in close contact with Merkel in the run-up to the decision. In the end the decision to exit without the backstop made political sense for Kenny and was probably convenient for Merkel. The prospect of Ireland’s fate being debated by German parliamentarians might have undermined the Coalition’s boasts about the restoration of economic sovereignty.

In Brussels too in recent weeks the mood also began to swing against the notion of a backstop because of its potential to spoil the one success story to emerge so far from the huge effort that has been put in to save the euro zone from disaster.

In the end it suited the key players to adopt Merkel’s line that “Ireland is ready for this step.” The big question is whether that assessment is correct. A crucial part of the answer relates to confidence. If people, and particularly the bond markets, believe Ireland is ready for the step then it is.

Fianna Fáil leader Micheál Martin didn’t get much of a hearing for his questioning of the Government decision in the Dáil. In part this was because he delayed proceedings by a futile piece of playacting, claiming the Government was not treating the Dáil with due respect by the way it went about the announcement.

Due deference
That inevitably drew comparisons with the shambolic way the previous government, of which he was a part, handled the entry to the bailout back in 2010. By coming into the Dáil to make a major announcement of national importance immediately after a Cabinet meeting, the Government paid due deference to the democratic process while conveying an air of competence and control. Of course it suited the Coalition perfectly to generate a political drama out of the decision but Kenny, Gilmore and Noonan carried it off with a bit of panache. That in turn helped to promote the narrative about a successful exit from the bailout, which is crucial to restoring confidence in the economy.

Still, Martin had some pertinent questions about the financial cost of the decision and he was entitled to point out that the Taoiseach and the Tánaiste voted against most of the bailout programme’s proposals when it was introduced. “Every member of the Government condemned the programme but they are now slapping themselves on the back for implementing it with such aplomb,” he noted.

It must be galling for Fianna Fáil that having endured the obloquy that came with the introduction of the bailout terms the party now has to suffer the indignity of watching its political opponents claiming credit for its successful implementation.

From the national point of view one of the downsides of the bailout exit without strings attached is that some important elements of the programme have still not been implemented.

The inexplicable delay in passing the Legal Services Bill through the Oireachtas is a case in point. This legislation, which was instigated at the behest of the troika, is designed to cut exorbitant legal costs, yet for some reason it has remained stuck at committee stage for more than 18 months. The suspicion must be that powerful forces have managed to hold it up for so long that it will effectively be neutered.

Some other elements of the programme have also lagged behind but, to be fair to the Coalition, it has so far met the key budgetary targets that underpin it. Only time will tell whether Thursday’s decision was the right one to keep the country on course for a full recovery.

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