Bailout exit - Significant step on road to recovery

The Government announced yesterday that one month from today this country will make a clear break on the three-year EU-IMF bailout programme, without seeking the safety net of external precautionary funding. Thus Ireland will become the first country in the eurozone to exit a bailout.

The move should not be exaggerated or overestimated. It is just a step on the road of recovery, but it is a significant step because it marks a milestone on that road.

The Taoiseach insisted in the Dáil yesterday that the country is now in a position to fund itself on the markets, seeing that the National Treasury Management Agency has built up a cash reserve of over €20bn. As a result the country is already fully funded for 2014. Finance Minister Michael Noonan contended that it would really be pointless putting a backup programme in place when there would be no intention of availing of it at any time during the next year.

Earlier this year it looked like Ireland would have to adopt a follow-on programme, and there were indications that a €10bn precautionary credit line would be sought to help the country’s return to full market funding. But the minister contended that current conditions are favourable for exiting the bailout.

The situation was further encouraged by the recent cut in the ECB’s interest rate. Various factors combined to provide a window of opportunity to exit the bailout now, rather than adopting an overly cautionary approach that would have essentially postponed the decision for a year when the market conditions might not be as benign as at present.

The Government would have people believe that this has not been a rash decision. It was taken after obvious consideration of the implications of securing a financial safety net. It would have cost up to €50m to secure a €10bn credit line, which would not be necessary during 2014 at any rate.

Overcoming the fear factor is a major obstacle in any economic recovery. The confident manner in which the Government has acted — without squirming for backup facilities from international bodies or lenders— might provide a boost that will help to inspire market confidence.

The Germans wish for Ireland to exit the bailout, and they have been quite positive in their attitude. This might help market sentiment, but this country seemed to have received little real advantage from facilitating the Germans at the outset of the banking crisis.

The attitude of the Dáil might appear predictable. Fianna Fáil leader Micheál Martin denounced the Government for stage-managing the decision and not consulting the Dáil, but that might have been destructive, because it would have appeared like an attempt to get the opposition to share responsibility for the decision. This would have been seen as a show of weakness.

The Government has led. If existing conditions continue, time may well justify the decision, but if things go sour and it becomes necessary to seek a further bailout, we could be in even worse trouble.