In landmark for EU, Ireland leaves its bailout behind
Tuesday, 17 December 2013 00:08
-
- {{hitsCtrl.values.hits}}
REUTERS: Three years after going cap in hand to international lenders, Ireland has officially ended its bailout, providing a landmark for the euro zone’s efforts to resolve its debt crisis.
Ireland sought emergency help from the European Union and International Monetary Fund in 2010 to keep finances under control and has met the terms of the deal, cutting spending and raising taxes to cut its budget gap and rebalance the economy.
“This isn’t the end of the road. This is a very significant milestone on the road,” Finance Minister Michael Noonan told a news conference. “But we must continue with the same types of policies.”
The country of 4.6 million is funded into 2015 thanks to debt issuance over the last 18 months and is showing the way to Greece, Portugal and Cyprus - which have also had sovereign bailouts - and Spain, which has had help for its banking system.
Economic growth is slowly returning to Europe and Portugal aims to follow Ireland in completing its bailout next year, but deep problems remain particularly in Greece, stuck in depression.
Ireland’s economy is forecast to grow by about 2% next year, unemployment has fallen below 13%, from a 15.1% peak in 2012, and Dublin is confident enough to do without a backup credit line as insurance against market shocks.
While pledging to maintain fiscal discipline, Noonan said he will consider income tax cuts in the next two budgets to give the economy some support.
“If we can make changes which help the economy to grow better and create extra jobs, those are the kind of things we’ll do,” Noonan said.
A 10-year debt issue earlier this year means Ireland can leave the bailout flush with over 22 billion euros ($ 30 billion) of cash, almost twice the amount initially envisaged by its lenders.
Ireland could cut its total debt load from a peak of 124% of gross domestic product this year to 116% in 2014 by using its cash buffers, Noonan said.
“They have to be prudent. You can’t just cut taxes for the sake of it,” said Alan McQuaid, chief economist at Merrion Stockbrokers. “It’s a good story for the EU and it’s a good story for us (but) we’re still at the mercy of global factors.”
Struggles ahead
Leaving the bailout is an important achievement but Prime Minister Enda Kenny’s government still has plenty of hurdles to overcome as it seeks to win over the Irish people, with an election due by early 2016.
Kenny, who inherited the bailout when he came to power in 2011, will start efforts to win back voters in a state of the nation address on Sunday evening, the date he has earmarked as the official end of the bailout.
Ireland’s costs to borrow money for 10 years have now fallen below 3.5%, from a high of 15% just eight months into the bailout, but many people, particularly outside the capital, have yet to feel better about their finances.
And the banks which drove the country to seek help from the EU and IMF are taking centre stage again. A central bank assessment of balance sheets showed capital adequacy ratios at Bank of Ireland, the only lender not fully owned by the state, dropped more than expected.
“The phase of additional European countries going into programs, and those in programs being uncertain about their future, that has passed now and the euro zone is quite strong again,” Noonan said.
