Further EU aid to lighten the weight of Ireland’s massive debts is still a possibility, the head of the body responsible for raising money for broke countries hinted as Ireland waves goodbye to its austerity programme.
However, even as Ireland is lauded as the success story the eurozone craved ever since the currency itself was in danger, at least four bodies will be keeping a watchful eye on Irish budgets for the foreseeable future.
In an exclusive interview with the Irish Examiner, Klaus Regling, head of the EFSF and its successor body, the ESF, was full of confidence about Ireland’s future.
However, he insisted Ireland must continue to abide by annual budget advice from the European Commission on cutting debt and deficits.
Mr Regling said the door had not been closed on the European Stability Mechanism retrospectively recapitalising states for the money it put into the banks. Eurozone ministers have agreed to consider the move on a case-by-case basis, but any decision would have to be unanimous.
“But ministers have said it is a possibility,” he said. “Because nobody knows what the future will look like, so not to close a door is probably wise.”
On the ESM directly recapitalising banks rather than the money going through the state, leaving the taxpayer liable, Mr Regling said finance ministers had agreed in principle to direct recapitalisation — but not before the ECB takes over as the Single Bank Supervisor next autumn.
He said, however, that the ECB did not expect big problems in the eurozone as a result of its stress tests, which will be carried out next year.
He added that the State aid rules meant banks would have to contribute before either state or ESM money can be given to them.
The ESM will want to be informed about the budget but will not impose policy measures such as tax or spending cuts. “Our interest is to make sure that money that has to be repaid to us is actually available,” he said.
He saw the success of the Bank of Ireland raising €2bn to repay the State with interest as a sign that the relationship between the Government and Irish banks getting back to normal.
This builds on what he sees as a key reason for Ireland’s recovery — regaining competitiveness. He sees Ireland’s problems as labour costs rising faster than the eurozone average, high government spending from 2005, and low interest rates that fed the housing bubble.
Growth is returning, exports are rising, and the population should begin to see the effects in their everyday lives, said Mr Regling, but he warned that the recent jump in Dublin house prices must not be allowed to become another bubble.
Tracker mortgages have become less of a problem for the banks, he said, and he does not see a role for the ESM. The Government would like for it, the banks, and the ESM to guarantee trackers so the ECB would accept them as collateral.
Responding to claims that austerity measures violated human rights, Mr Regling said he fully supported the troika programmes and believed that, without them, the “pain would be worse, the adjustment would be brutal and much faster”.
The Luxembourg-based body, now with 100 staff, was set up as a temporary mechanism through which EU countries guaranteed loans to bailout Greece. Since then, it has become an international financial institution rechristened the ESM, one of the largest issuers of European debt that, with the EFSF, has committed €238.6bn to five countries — Ireland, Portugal, Greece, Spain, and Cyprus.
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