Bailout exit - What we fear most is fear itself

The Government has been bragging about being on track to exit the bailout on Sunday, Dec 15.

There is no doubt that it inherited a dreadful financial mess, but in the last general election campaign, the two parties that now make up the Coalition insisted they would renegotiate the financial constrictions of the bailout.

If the country does successfully exit the bailout, it will be a significant achievement for the Government, but there are serious doubts that Ireland will be able to obtain full market financing. Hence, there have been calls for the EU to provide a kind of security blanket by announcing that money will be available to Ireland, if needed.

This would not necessarily be a second bailout, but rather an agreement that such a bailout would be available if needed. In 1933 after President Franklin D Roosevelt came to power in the US during the Great Depression, he proclaimed that — in relation to economic and financial recovery — what the American people had to fear most was fear itself. This is essentially the problem now facing this country.

The great danger is the fear that Ireland will not be able to succeed without a second bailout. There are fears that our current debt is unsustainable, but then this could just as easily be said of some of the most successful economies. People should be aware of the debilitating impact of fear.

In the circumstances, it is understandable that Taoiseach Enda Kenny was not prepared to rule out the necessity for a credit safety net on the lines of an overdraft facility. But it seems the troika would impose harsh financial controls, even if this country did not need to use that safety net. In effect, it would subject the country to the effects of a second bailout, whether the Government ultimately needed to use the money or not.

Mr Kenny wrote to EU leaders last week reminding them of last year’s promise to break the vicious circle between governments and banks whereby the taxpayers end up bailing out banks. But under German pressure, EU leaders appear to be rolling back on plans for a banking union, or have the European Stability Mechanism, the EU’s rescue fund, establish a fund that would rescue or wind-up failing banks.

By emerging successfully from the bailout, Ireland would provide a morale boost in relation to the other financially distressed countries in the EU, so this should provide an incentive for EU leaders to assist with the necessary safety net. But Mr Kenny’s efforts at the recent summit clearly did not go to plan.

The Government could choose to go it alone without an agreed credit line, but it would obviously be more prudent to have a safety net. Too many people are in the dark as to what the Government is actually attempting.

The Taoiseach and the finance minister must outline their strategy. The speculation is not only adding to the uncertainty, but also to the fears. And what we have to fear most is fear itself.