Noonan in crunch talks with IMF over post-bailout credit facility

Minister for Finance Michael Noonan will meet International Monetary Fund (IMF) officials in Washington this evening amid uncertainty over whether the Government will seek a precautionary credit line when it leaves the bailout programme in December.

With only seven weeks to go before Ireland’s official exit from the EU-IMF bailout, there is still no consensus in the troika or among European leaders about what sort of backstop might be provided to cushion Ireland’s return to the markets.

The Government is keen to ensure any conditions attached to a credit facility should go no further than existing EU budgetary commitments.

However, European sources doubt that would satisfy the European Stability Mechanism fund or the IMF.

Mr Noonan was due to hold talks in the Washington headquarters of the IMF with its first deputy managing director, David Lipton.

IMF managing director Christine Lagarde will meet the Minister for dinner this evening at Ireland’s embassy to the US.

This follows Mr Noonan’s negotiations last week in Strasbourg with EU economics commission Olli Rehn, as well as discussions in Frankfurt with the European Central Bank and the Taoiseach Enda Kenny’s engagement with EU leaders at a summit in Brussels.

With troika inspectors due in Merrion Street tomorrow for their 12th and final mission before the bailout ends in mid-December, the focus now is the terms on which any emergency credit line is granted.

At issue is whether the Government can secure access to a credit line without accepting fiscal policy conditions which go beyond existing obligations under new EU budget rules. However, this is unlikely to satisfy either the IMF or the EU powers.

While there is speculation in political circles that the Coalition will not accept a precautionary loan programme if the conditions are too onerous, Mr Noonan has kept all options in play.

Having indicated during the summer that the Government would be seeking such a programme, it has rowed back from this position. The Government has large cash reserves in place anyway, so it could argue that access to an emergency safety net is not strictly necessary.

To avoid any lack of clarity in the immediate run-up to December 15th, the Coalition expects to make a public declaration of its intentions some time in November.

This timetable allows for the Cabinet to assess Mr Noonan’s talks, the troika’s mission and the outcome of ongoing stress tests on Ireland’s banks.

Safety net

The aim in any declaration would be to provide certainty both to financial markets and the Ireland’s international sponsors, with whom any precautionary credit line would have to be agreed.

The IMF and the ECB are keen for the Government to take on a programme precautionary credit line but they are insisting on compliance with tough policy conditions in return. Dublin would be obliged to submit to such conditions even if it never drew down money from this credit facility.

Still, the EU commission sees no “obvious” need for such a programme. Its concern is to avoid undermining the “success story” of Ireland’s return to private debt markets at the end of the bailout.

Any precautionary programme from the European Stability Mechanism fund would necessitate parliamentary approval in Germany and other euro zone countries.

If proceeding in this manner, there would also be a separate IMF