Finance Minister Michael Noonan has brushed aside warnings from the Fiscal Advisory Council that he should have applied for a precautionary credit line from the EU’s fund, the ESM.
He sounded a note of caution, however, saying that the country and the eurozone was going through a particularly benign period at the moment.
Claims that his decision would militate against the ECB buying the Government’s bonds through the outright monetary transactions programme were wrong, he said. The ECB agreed, saying it was “hard to see it being used for just one country”.
Mr Noonan insisted that the Government’s decision to go for a clean exit from the bailout programme had been approved by the markets, especially as the two State-owned banks had been so successful in raising public money earlier this week.
The minister said the decision would have no bearing on whether the ESM would buy Irish bonds through the outright monetary transactions programme, and said the issue was misunderstood by some commentators.
Asked why the Government had not taken the Fiscal Council’s counsel, he said they always review their advice. “We go through it quite seriously and we take of lot of their advice on board,” he said.
“Overall, the report shows that the Fiscal Council approves of the overall thrust of the Government and then they challenge us as they should on a number of issues — if the Fiscal Council and the Government were fully in agreement it would be pretty pointless, and they would lose credibility,” he said.
The council was established as part of the new EU rules to provide independent advice and prevent the country “going down the primrose path as it did when it was led by Fianna Fáil and the Greens — nobody wants that to happen anymore”.
The Government reached its decision having taken advice nationally and internationally.
He was convinced it had taken the right decision and the fact that the markets had not reacted and that there was no negative reaction from credit rating agencies was positive.
“The tangible response came from AIB and PTSB going to the market this week where they raised €500m each at very good rates and were both very heavily oversubscribed. They are both fully owned by the State and so, in effect, they are surrogates for the State when they enter the market,” he said.
The issue of outright monetary transactions — the ECB buying up government bonds on the secondary market — was being misunderstood, he said. It was not intended to be country specific but was envisaged for the wider eurozone area if there was a systemic difficulty.
“That remains the same as not having a precautionary programme — it will not give us any advantage or disadvantage in the future if there is a systemic risk to the euro,” he said.
A spokesperson for the ECB confirmed his view. “The initial idea to have it also for countries exiting a programme was never officially abandoned, but it was clear that outright monetary transactions is a secondary market instrument mainly to be used for bonds with maturities up to three years.”
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