Brussels, 25/10/2012 (Agence Europe) - Representatives of Ireland's institutional creditors are drawing positive conclusions from the 8th review of how Ireland's economic adjustment programme is being implemented. Despite “the challenging external environment”, Dublin is persevering in its application of policies decided as part of its financial rescue plan aimed partially at its banking sector, the troika (the European Commission, the European Central Bank and the IMF) stated in a press release on Thursday 25 October. This positive assessment opens the road to the payment of €1.7 billion (€0.8 billion from the European Financial Stability Facility (EFSF) and €0.9 billion from the IMF), in addition to €0.5 billion in bilateral loans from the United Kingdom and Sweden. The next troika review mission will be in January 2013.
Ireland's efforts should allow the country to attain its targets for reducing budgetary deficit for 2012. In 2013, the deficit ceiling should reach 7.5% of GDP.
Investor confidence is gaining ground, which is a sign of economic recovery. Borrowing conditions on the international markets have been clearly eased with 8-year rates now under the 5% bar. According to the troika, this situation reflects the robust implementation of the terms of the memorandum and also the decisions taken by eurozone leaders in June on direct banking recapitalisation (see EUROPE 10645), as well as the recent announcement by the ECB of its “outright monetary transactions” (OMT) for conditional repurchase of the public debt of eurozone countries in difficulty.
Nonetheless, the troika warns Dublin of significant risks that will continue before a complete return to market financing. In particular, economic recovery is gradual, supported by exports, but is dragged down due to domestic demand that is slow to pick up as the rate of unemployment is still too high and loans granted to households and to SMEs are insubstantial. In this context, the troika predicts low growth in Ireland in 2013, at about 1% of GDP. Dublin is, moreover, encouraged to use, among other things, EIB funds to support job creation.
The European commissioner for economic and monetary affairs, Olli Rehn, was delighted with the conclusions of the troika and the fact that the Irish government had reaffirmed its strong attachment to achieving budgetary objectives. In a press release, the Irish finance minister, Michael Noonan, reiterated his country's determination to comply with its commitments, saying: “More than 160 commitments have been fulfilled on time. (…) However, many challenges remain, including the heavy burden of debt associated with the recapitalisation of the banking sector”. On this point, he said “work is ongoing with the troika to reduce this burden in line with the June 29 agreement”. During the eurozone summit, the EU17 had decided to allow direct recapitalisation of banks with the European Stability Mechanism (ESM), once a single banking supervisory mechanism is in place in the eurozone under the aegis of the ECB. (EL/transl.jl)