Euro body will monitor State’s budget until 2042 to ensure we repay debts

The euro body that helped bail out Ireland will be checking annual budgets for decades to come to ensure enough money is set aside to repay the debt.

While the troika will officially leave once 75% of the debt is cleared, the Luxembourg-based EFSF will remain, the Irish Examiner has learned exclusively.

The body will develop its own “early warning system” to alert it to any danger that the country cannot repay the capital and the interest, EFSF chief Klaus Regling said on the eve of Ireland’s exit from the bailout programme.

He cautioned over the recent big jump in Dublin housing prices, saying “we don’t want another bubble”, and left the door ajar on the Government getting back some of the money it put into the banks, and on his body directly recapitalising troubled banks, possibly late next year.

The EFSF, which has now become the ESM, the EU’s rescue fund, raises money on the markets at low interest rates thanks to its high credit rating, to lend to EU countries shut out of the market. This week it paid the last of its €17.7bn loan to Ireland, and the last repayment is due in 2042.

Ireland will make repayments every three or six months, ahead of which the body’s experts will analyse whether the country has made arrangements in the budget so the payment can be made, Mr Regling said.

“As a result, we are in a regular exchange with the authorities to get information on that and we will look at the broader developments to ensure the capacity to pay is really there,” he said.

The European Commission will carry out its own monitoring because of the loans it made to Ireland, as will the IMF. The commission will also play an increased role as part of the new EU economic governance to safeguard the euro.

Mr Regling said they would not impose policy measures such as spending cuts or tax increases in their monitoring of the country’s ability to repay.

“We have to make sure the money is foreseen in the budget. As long as that is case — and that will be the normal situation because the payments are no surprise, they are known in advance, there will be no demands of any sort made on the Irish Government,” he said.

“Only if we come to the conclusion that payments that are due are not foreseen in the budget, then we would have a serious talk with the Government, but I would not expect that to happen.”

Mr Regling — who with Max Watson carried out a study on behalf of the Government into the causes of the banking collapse in 2010 — was upbeat about the country’s future.

He said it was normal that the person in the street was not feeling the good effects yet of the recovery. “There is unfortunately a time lag between structural reforms and fiscal consolidation before the benefits in terms of higher growth and more jobs are visible.”

On the banks, Mr Regling said the burden of tracker mortgages appeared to be getting smaller but he ruled out the ESM being able to help.