More troika praise – and some concern

The Government's execution of the bailout continues to win plaudits from the troika. Although acutely-sensitive questions over the 2014 budget and a financial safety net must still be settled, the international inspectors are confident that Ireland is on track to exit the programme in December.

“We are certainly nearing the end of this arrangement,” said an EU official who was previously with the IMF. “I think we still have a remarkable degree of commitment and implementation . . . In the past 15 years I have never seen anything like this in real life.”

So far, so solid. But that is not to say the Government has shaken off the fiscal crux. Far from it. Of concern in troika circles is the return of recession. While this could undermine the Coalition’s capacity to beat its deficit target next year, Ministers are still pushing to reduce the €3.1 billion package of cutbacks and tax measures foreseen for budget 2014 .

Contraction
If all of this points to friction in the autumn, the sense is reinforced by the troika's disquiet at the first-quarter contraction in economic output.

“The Q1 was a little bit confusing, I have to say. We need to really digest what is really going on in the sense of we see lots to positive things,” the EU official said.

“But of course the headline GDP number was not something that would be reassuring. So we need to see whether we can expect a major revision of that.”

That's part of the story. Next is the question of a special credit line to be held in reserve in case of a post-bailout emergency. An application for such insurance now appears a near-certainty, with Minister for Finance Michael Noonan talking about a 12-month scheme. At issue are four questions: the source of such aid; the size of the credit line; its price; and the strings attached.

Precautionary credit
The expectation is that Dublin will seek precautionary credit from both the IMF and the ESM bailout fund. The size of the loan line in play is not yet known. However, a European Central Bank bond-buying plan is less likely because the outright monetary transactions scheme is contentious and the ECB would rather not deploy it.

On price, Dublin is expected to push for an interest rate below the 3.8 per cent on Irish 10-year debt of recent times.

As for conditions, the Government does not want anything beyond its legal obligations under European treaties.

This might well prove acceptable to EU officials. Whether it washes with Berlin and its allies is another matter.