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News : Irish Economy Last Updated: Nov 15, 2013 - 8:24 AM


Ireland to exit bailout without credit line backstop; Help on hand if needed
By Finfacts Team
Nov 14, 2013 - 1:49 PM

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Ireland to exit bailout without credit line backstop; Help on hand if needed

The Irish government today choreographed what it termed an "emergency Cabinet meeting" in advance of an announcement that Ireland will exit the European Union-IMF international bailout without what was termed a "precautionary credit line." The issue of a backstop in the event of an unexpected rise in bond yields in future was just spin as the European Stability Mechanism (ESM) rescue fund could be tapped at short notice while the European Central Bank has a bond-buying programme subject to conditions.

The Department of Finance said in  a statement:

The market and sovereign conditions are favourable towards Ireland with the country returning to the markets in 2012, holding over €20bn in cash reserves at year end which we can use to ensure that we can meet our maturing commitments and funding costs till early 2015 and Irish sovereign bond yields at historically low levels."

Juliet Tennent, economist at Goodbody, commented  - - "Following weeks of speculation and intensive meetings between the Irish Government and the European Commission, the IMF and the ECB, the Taoiseach, Enda Kenny, has announced that Ireland will not be applying for a precautionary credit line. The announcement was made ahead of today’s meeting for European finance ministers where the Minister for Finance, Michael Noonan, is expected to communicate Ireland’s decision.

The Government cited the following in relation to its decision to exit the programme without a backstop:

1)    The Euro area safeguards and procedures that have been introduced since the onset of the sovereign debt crises and that offer support to Ireland’s efforts to make a sustainable and durable return to markets. These include the ESM, the support of the ECB and the new fiscal regime (two pack/six pack) that the European commission has implemented,

2)    The comfortable funding position that the Irish government is in due to the €20bn plus in cash reserves available which ensures that the sovereign is funded until early 2015 and the current historically low levels of bond yields, and,

3)    The improvement in the public finances over the programme timeframe which means that the government in on track to meet its deficit target of less than 3% by 2015 and remains committed to reducing the debt ratio

While this announcement is largely in line with recent speculation and the government is indeed in a comfortable funding position, we would have preferred to see the government apply for a precautionary credit line; not only for the safety net it would have provided but also the additional external surveillance that would have ensured that momentum in the implementation of the outstanding bailout programme reforms would be maintained. However, Ireland’s decision to exit alone shows confidence in its ability to fund itself and may well be viewed favourably by the ratings agencies, particularly Moody’s."

Enda Kenny, taoiseach, said in the Dáil today:

Alongside the bailout exit in December, we will publish a new Medium Term Economic Strategy to set out a new sustainable economic pathway back to prosperity for the country.

This will include a recommitment to bringing Government borrowing down to sustainable levels during the remainder of this Government’s term of office.

It will be an economic plan based on enterprise, not speculation."

Not speculation?

The circular has likely gone out already appealing for ideas.

There will be lots of S_O_ but any project that doesn't recognise weaknesses and threats is going to be a failure.

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