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.
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.