Ireland to exit bailout program without backstop
DUBLIN (AP) — Ireland will exit its international bailout agreement next month without the safety net of a precautionary credit line, Prime Minister Enda Kenny announced Thursday in a sign that the Irish are confident they won't suffer a beating in the bond markets.
Thursday's decision means Ireland will be the first of the eurozone's four bailout recipients — alongside Greece, Portugal and Cyprus — to wean itself off of emergency aid from the European Union and International Monetary Fund. The move comes three years after Ireland was forced into a humiliating rescue worth 67.5 billion euros ($91 billion) in loans to keep the country funded until December 2013.
"We will exit the bailout in a strong position," Kenny told lawmakers in Dublin ahead of a meeting of eurozone finance chiefs in Brussels later Thursday focused, in part, on whether Ireland would require any strings-attached insurance should its cost of borrowing soar again.
Ireland's own credit rating had been destroyed by its 2008 decision to insure the nation's banks against losses incurred in a collapsing property market, a commitment expected to cost taxpayers more than 65 billion euros. But Ireland's reputation has steadily recovered as, under EU-IMF scrutiny, the government has slashed spending, hiked taxes and exceeded a series of deficit-reduction targets.
Reflecting his cautious outlook, Finance Minister Michael Noonan this year said he wanted EU-IMF chiefs to give Ireland a precautionary credit line of potentially 10 billion euros as part of any exit. But Noonan told an emergency Cabinet meeting Thursday that such aid would come with unattractively restrictive conditions, so Ireland should make do without the backup.
Kenny said would-be buyers of new Irish bonds should be reassured that the country has built up more than 20 billion euros ($27 billion) in emergency reserves.
And he said the government next month would unveil a medium-term plan to spur economic growth while continuing to rein in the national debt.
"It will be an economic plan based on enterprise, not speculation. Never again will our country's fortunes be sacrificed to speculation, greed and short-term gain," Kenny said in reference to the previous Irish government's decade-long stoking of a runaway property market and weak regulation of banks.
The Finance Department in a statement said the treasury's reserves would be sufficient to fund Ireland's deficit spending and bond repayments through 2014 if, in a worst-case scenario, global investors again dumped Irish debt securities as happened in 2009 and 2010.
It said Ireland expected to post a 2013 deficit of 4.8 percent of economic output, better than the EU-IMF goal of 5.1 percent. Ireland posted an EU-record deficit in 2010 of 34 percent, reflecting that year's gargantuan bank-rescue costs.
The reserves mean Ireland's treasury does not need to rush into the bond markets next month, but can sell securities gradually through 2014 and pause in the event of any new short-term crises of confidence in the eurozone.
Ireland has already resumed limited auctions of bonds over the past year at relatively affordable prices. The yields on Irish bonds have even fallen below those of Spain and Italy.