ANALYSIS:The ECB and IMF may yet end up arguing among themselves over Irish budget targets
TROIKA PRESS conferences are becoming very repetitive.
Yesterday’s press briefing by the three heads of delegations – from the European Commission, the European Central Bank and the International Monetary Fund – was little different from the previous sessions with the press, held at the end of each quarterly visit.
Lavish praise was heaped on the Government for implementing the terms of the bailout in full and on time. All targets had been met up to the end of 2011. Some were even surpassed.
The all-going-to-plan mantra may be repetitive, but it is likely to have made some contribution to convincing the bond market that Ireland is worth taking a punt on.
In recent days, yields on most Irish government bonds have fallen back below levels last seen in mid-November 2010, just before the first rumours were heard of the troika jetting in.
If the appetite of investors for Irish government debt continues to grow over the next six months as it has done over the past six weeks, the Coalition will be discussing an early exit from the current bailout, not pleading for a second one.
But don’t bank on the bond market.
With so many weaknesses in the domestic economy, incipient recession in Europe and a far- from-resolved euro zone crisis, there are plenty of spooks in store for the bond trader herd.
But there is, too, the possibility of pleasant surprises.
Straightforward relief on the debts run up by the infernal Anglo Irish Bank, via a transfer of debt from the Irish State’s balance sheet to Europe’s, remains unlikely.
An easing though of the repayment terms of that debt via some form of de facto subsidisation is now very likely.
Both the Government and troika talked openly yesterday of discussions on the issue. It is now firmly and openly on the agenda.
The three bailout institutions would not have allowed it to be put on the agenda, nor would other EU member states have allowed them to put it on the agenda, if there was not an intention to make some changes.
The real question over the coming months is whether a deal on the promissory notes is significant or merely symbolic.
Another question for the months ahead is whether the Government can convince the troika that it can invest the proceeds of privatisations wisely.
On this matter, there has clearly been a change of collective position by the rescuing institutions. Initially they wanted all receipts from the sale of State assets to go to paying down debt. In part as a reward for persistent compliance, the troika is willing to entertain giving ground on the issue.
New public investment however is far from a done deal. The Coalition will likely have to make a very solid case for any investments that it wants to make and then portray it as a stimulus.
Convincing cost-benefit analyses on its proposals will be needed and, even if strong, commercially viable cases can be made for new projects, the foreign technocrats can be expected to suggest having the private sector make the investments, rather than ploughing in privatisation receipts.
Media troika-watchers are ever vigilant for signs of division among the three. There was one clear, if subtle, difference on show yesterday.
Perhaps the least-well-kept secret over the course of the crisis has been how the America- influenced IMF worries about excessive austerity, while the Germany-influenced ECB worries about the perils of not balancing the books.
In December, the IMF declared that in the event of the Irish public finances going astray in 2012, the fund’s economists thought it better to miss budget targets than to heap further cuts and new taxes on Irish folk this year.
That is likely to have caused no little gnashing of teeth in Frankfurt, where no budget “adjustment” is ever too big.
When the ECB’s man was asked yesterday what he thought about sticking to budget targets, he made clear – in a manner so polite it was barely perceivable – that he disagreed with his IMF counterpart. Even in the event of a downturn, he said, Ireland should not give up the credibility it had gained from sticking to budgetary targets.
With budget deficit targets more likely to be missed than met, the troika may be arguing among themselves in the months ahead about whether Michael Noonan will be directed to deliver an emergency mid-year budget.