Ireland: Ireland set to exit bailout in December without precautionary funding
November 14, 2013
On 14 November, Irish Prime Minister Edna Kenny confirmed that Ireland would exit its bailout program on 15 December without a precautionary line of credit. The announcement came three years after the Irish government received more than EUR 85 billion in loans from the international troika composed of the IMF, EU and ECB, in response to the collapse of its banking system and real estate market. Ireland's economic environment is improving and the country has built up more than EUR 25 billion in cash reserves following the successful return to bond markets in 2012. The government is confident that the reserves will provide a sufficient buffer to fund the government until at least early 2015, and also to safeguard the economy in the case that market conditions turn unfavorable.
The Irish government also claims that public finances are under control. Following a period of harsh austerity budgets, the government is now aiming to reduce the deficit to 7.5% in 2013, 4.5% in 2014 and 3.0% in 2015. Irish government bond yields are hovering around 3.5%, which is remarkably low compared to the 15.0% mark they had reached at the peak of the Eurozone debt crisis in July 2011 and the 8.0% rate when Ireland entered the bailout. The decision to turn down a precautionary safety net implies that the country will fully return to international lending markets and that it will have increased decision-making independence, which is a contrast to the strict international oversight that was attached to emergency bailout funding. FocusEconomics Consensus Forecast panelists expect Ireland's fiscal deficit to be 7.4% in 2013, 4.9% in 2014 and 2.7% in 2015.
Ireland will become the first of four Eurozone countries to exit a bailout arrangement stemming from the debt crisis. Many analysts describe Ireland's exit from the bailout as a step in the right direction and a success story for Europe as a whole, but they also emphasize that significant challenges lie ahead. Ireland emerged from recession in the second quarter of 2013, but unemployment remains in the double digits and austerity measures still weigh heavily on public services and household welfare. Moreover, Irish banks are struggling under a burden of bad debt and upcoming stress tests could reveal additional problems within the financial system.
According to its Q4 Quarterly Bulletin, the Central Bank expects GDP to grow 0.5% in 2013 and 2.0% in 2014. FocusEconomics Consensus Forecast panelists expect the economy to grow 0.2% in 2013, which is unchanged from last month's forecast. For 2014, the panel sees economic growth accelerating to 1.9%, which is also unchanged from last month's projection.
Author: Carl Kelly, Economist