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Friday, September 06, 2013

Ireland prepares to exit financial assistance…with further assistance…

Talk surrounding the Irish exit from its bailout programme has been picking up in recent days and weeks given that it is supposed to get off its current bailout programme at the end of this year (the final disbursement of funds is expected sometime in November).

The last few days in particular has seen increased interest with Eurogroup head Jeroen Dijsselbloem telling the European Parliament yesterday that there would be “measures to support [Ireland’s] gradual exit” from its programme. Irish Finance Minister elaborated on this suggesting that Ireland will seek a €10bn credit line to help aid its transition back to fully funding itself.

All this means that it is looking increasingly likely that Ireland will request some form of ESM credit line towards the end of the year. This could take two forms:
Precautionary credit line (PCCL): open to eurozone states that have sound economic and financial situation including: sustainable public debt, access to capital markets, sustainable external position and solvent banking system (amongst others).

Enhanced credit line (ECCL): essentially for member states who do not meet the criteria for PCCL but do not require a full bailout programme. Conditions will involve improving shortcomings that prevent PCCL access.
Looking at the above criteria Ireland is likely only to be eligible for the ECCL, given the on-going banking sector issues and the questions over debt sustainability after the bank bailout. The procedure is pretty similar to any other bailout request and given Ireland's relative success in implementing reforms, approval seems likely. Importantly, “enhanced surveillance” (read strict conditions) will apply in either case, so Noonan’s hope that this can be done without further austerity and/or reforms seems unlikely to be fulfilled.

The key aim of such a loan is to gain access to the ECB’s OMT, its bond buying programme. Under a credit line Ireland would be eligible for the OMT as the programme applies the much needed conditionality. The combination of the loan (the size is not particularly important) and the OMT means it may not have to be tapped.

All that said and despite the many resounding endorsements for Ireland’s progress, many problems remain. In particular, toxic loans at Irish banks continue to increase while households struggle under the burden of such loans. The issue of how to deal with the public debt created by the previous round of bank bailouts remains unsettled and leaves a cloud hanging over the Irish economy.


Rik said...

Another least dirty shirt issue.

Ireland is by far the best in the PIIGS class. The rest is total crap in absolute terms, but these things are mainly decided on relative criteria.
In that respect it is nearly 100% sure that a solution will be found one way or another. Effectively the only risk I see is one of the others messing things so much up that there will be a new sort of situation (carpet pulled under a Latino/Greco). Otherwise pulling the plug on Ireland will mean pulling the plug out of all PIIGS (and several others). A risk that the EZ as a whole clearly nor willing to take.

Kick the can, with the golden medall for Ireland in that discipline. With a lot of hyped media coverage (it works), with Ireland in the MO/Usain role.
All so predictable.

clinihyp said...

Having lost out at the G20 and in Parliament, our PM is still chasing favourable headlines rather than dealing with our problems.

We can be sure he will treat us to a great deal of rhetoric but what he won't tell us because he lacks the authority and the power to do so is just how he intends to bring that miracle about!

As Barry Legg the former chief executive of the true Tory party pointed out:

“Having failed to deliver on his promise to oppose Lisbon in office, David Cameron now promises to oppose future treaties transferring power. The whole point of Lisbon is that it does away with such treaties in future. Does David Cameron really not understand this, or is he again trying to play games with words? David Cameron refuses to say how he’ll able to convince every single other EU state to agree to hand back powers to Britain. He refuses to say what he’ll do if they don’t. He refuses to say what time scale he is working to. He refuses to say what he expects to give up in negotiations”

jon livesey said...

I think it is interesting that the euro crisis has gradually "trained" us all to view events through a narrow set of statistics that happen to be the ones the ECB are concerned about, such as debt/GDP, financial support, ability to re-enter commercial credit markets, and so on.

Meanwhile the events that Irish people have to deal with day to day, and which presumably help to form Irish opinion, are a different set. GDP/head has fallen by 11% since 2008, GDP has fallen by 20% in the same period, population, which was rising by about 100,000 a year is now more or less flat because of emigration, unemployment is up to 13%.

So, Ireland may be the poster child for this and that, but its a this and that which is mainly of interest to central bankers, while to the ordinary Irish citizen, things must feel quite different.

Anonymous said...

So Ireland can get by without a bailout as long as it is given more money that is not called a bailout, sounds like the usual eussr politspeak to me.