Key reason behind exiting bailout unaided was timing, says Michael Noonan
Minister says time was right with a favourable response from the markets
Graffiti on a wall in Dublin’s city centre urging repudiation of the debt. Ireland has ruled out precautionary funding. Photograph: Press Association
Minister for Finance Michael Noonan said yesterday that he had the “full support” of European lenders and the International Monetary Fund in deciding to exit the bailout without a precautionary credit line, arguing that the “time was right” to return to full market access unaided.
Mr Noonan spoke by phone to European Central Bank president Mario Draghi, European economics commissioner Olli Rehn and IMF managing director Christine Lagarde earlier in the day ahead of the announcement in Dublin.
Addressing reporters as he arrived in Brussels for a meeting of euro zone finance ministers, Mr Noonan said the key reason behind the decision was one of timing.
“We think that the time is now right for exiting the problem and that may not always be so . . . if we took a precautionary programme we would have to take the decision we made today next year,” the Minister said pointing out that there was no guarantee that the situation would be as benign then.
The fact that Ireland would not have to draw on the funds next year as it is already funded into 2014 was also a factor. “
“If we took a precautionary programme it was clear that we would not have to use it in 2014. Then the consideration would be will we take it so that we have an option of extending it,” he said.
Asked about the impact of the decision on the Irish people, Mr Noonan said it was a question of sovereignty.
“We spent an awful lot of time getting our freedom and getting the authority to run our own affairs, and there’s not much point in having political freedom if you do not have economic and financial freedom .”
With Ireland scheduled to take part in next year’s European banking stress tests, the European Central Bank in particular is understood to have had concerns about problems in the Irish banking system and favoured the use of a precautionary credit line.
In contrast, the European Commission advocated a so-called “clean exit” , with euro group president Jeroen Dijsselbloem supporting an early decision on the issue.
In a statement yesterday IMF managing director Christine Lagarde said Ireland was in a “strong position” in terms of its bond yields and sizeable cash buffer, though it made no mention of the decision to exit the bailout without a backstop. “We look forward to continuing to work with the authorities as they address the challenges that remain.”
The Central Bank will begin stress testing the Irish banks in conjunction with the European Central Bank next year, as the ECB prepares to take supervisory control of the main European banks. Balance sheet assessments – which look at the position of the banks at a certain point in time, rather than in stressed scenarios, are under way in Dublin on Bank of Ireland, AIB and Permanent TSB and are likely to feed into next year’s stress tests, with mortgage arrears a key concern.
Mr Noonan said yesterday there was “no evidence” that the banks need additional capital. In particular, rising property prices meant that the value of the collateral underpinning loans in the Irish banking sector are increasing, making the need for additional capital less likely, he said.
In a mark of market support for the move, bond yields fell yesterday, with 10- year government bonds gaining ground.
Despite fears markets may have been “pricing-in” an expectation that Ireland would seek a precautionary credit line, bond yields have remained at the relatively low level of 3.5 per cent since Mr Noonan first indicated at last month’s Fine Gael annual conference of an exit from the bailout unaided.
Discussions will now focus on the level of surveillance that will apply to Ireland after the programme officially ends. EU legislation states that countries in receipt of a programme will be subject to post-programme surveillance by the European Commission and the ECB until 75 per cent of the loans are paid off.
This includes “regular review missions,” though countries will not be subject to any specific targets. With Ireland the first euro zone country to exit a bailout programme, details of the programme will be worked out in coming weeks.
Attention will now turn to Portugal, which expects its programme to expire in June next year. Mr Noonan said yesterday that Ireland’s decision not to opt for a precautionary credit line does not set a precedent for other countries, specifically mentioning Portugal.