DUBLIN – Ireland will exit its international bailout agreement next month without the safety net of a precautionary credit line, Prime Minister Enda Kenny announced Thursday in a sign that the Irish are confident they won’t suffer a beating in the bond markets.
Thursday’s decision means Ireland will be the first of the eurozone’s four bailout recipients to wean itself off of emergency aid from the European Union and International Monetary Fund. The move comes three years after Ireland was forced to take 67.5 billion euros ($91 billion) in loans to avoid bankruptcy.
“We will exit the bailout in a strong position,” Kenny told lawmakers in Dublin.
Ireland sabotaged its own credit rating by deciding, in 2008, to insure the nation’s banks against losses incurred in a collapsing property market. That commitment ultimately cost taxpayers more than 65 billion euros, a bill the state couldn’t finance. But Ireland’s reputation has steadily recovered as, under EU-IMF scrutiny, the government has slashed spending, hiked taxes and exceeded a series of deficit-reduction targets.
Reflecting his cautious outlook, Finance Minister Michael Noonan initially had said he wanted Ireland to take a precautionary credit line of potentially 10 billion euros to ensure the success of any bailout exit. Both the European Central Bank and IMF had said Ireland would be wise to secure one.
But Noonan told an emergency Cabinet meeting Thursday that such aid would come with unattractively restrictive conditions, so Ireland should make do without it. He and other government leaders said taking out EU-IMF insurance would create the impression that Ireland was still subject to foreign aid.
In Brussels, the EU figure most associated with Ireland’s bailout, Economic and Monetary Affairs Commissioner Olli Rehn, said Ireland’s decision would “send a very clear signal to markets and international lenders that the adjustment effort undertaken in Ireland … has paid off.”
Kenny said would-be buyers of new Irish bonds should be reassured that the country has built up more than 20 billion euros ($27 billion) in emergency reserves.
And he said the government next month would unveil a medium-term plan to spur economic growth while continuing to rein in the national debt.
“It will be an economic plan based on enterprise, not speculation. Never again will our country’s fortunes be sacrificed to speculation, greed and short-term gain,” Kenny said in reference to the previous Irish government’s decade-long stoking of a runaway property market and weak regulation of banks.
The Finance Department in a statement said the treasury’s reserves would be sufficient to fund Ireland through 2014 if, in a worst-case scenario, global investors again dumped Irish debt securities as happened in 2009 and 2010.
It said Ireland expected to post a 2013 deficit of 4.8 per cent of economic output, better than the EU-IMF goal of 5.1 per cent. Ireland posted an EU-record deficit in 2010 of 34 per cent, reflecting that year’s gargantuan bank-rescue costs.
The reserves mean Ireland’s treasury does not need to rush into the bond markets next month, but can sell securities gradually through 2014 and pause in the event of any new short-term crises of confidence in the eurozone.
Ireland has already resumed limited auctions of bonds over the past year at relatively affordable prices. The yields on Irish bonds have even fallen below those of Spain and Italy.
Economists said Ireland’s decision to forego EU-IMF insurance was better news for Ireland than for the eurozone, whose 17 members still must find a way to guide Greece, Portugal and Cyprus back into the markets.
“The region has missed the opportunity to establish a precedent for how (bailout) program exit is managed,” said Malcolm Barr, an analyst at JP Morgan Chase in London.
“The fact that the Irish authorities remained distrustful of the strings attached to a credit line, even given the sense that they have been a good performer, does not send a very positive signal about intra-European co-operation,” he said.