Brussels, 13/12/2013 (Agence Europe) - On Friday 15 December, the European Commission hailed the success of the Irish structural adjustment programme, with European Commission President José Manuel Barroso saying: “Ireland's success sends an important message - that with determination and support from partner countries we can and will emerge stronger from this deep crisis”.
On Friday, Dublin was on the verge of exiting its €85 billion bailout that began in 2010, having received the final positive assessment from its lenders to pave the way for disbursement of the final instalments of aid from the IMF and the EFSM (€600 million and €800 million respectively). Irish Finance Minister Michael Noonan warned: “This isn't the end of the road, but it is a very significant milestone on the road”, and did not signal any real change in economic policy. He said Ireland had pledged to introduce more budget consolidation in order to remain on track. It must reduce its deficit to below the 3% of GDP cut-off point by 2015. The troika of lenders (European Commission, European Central Bank and International Monetary Fund) will no longer have power over the government's economic policies, but will continue with less rigorous, six-monthly assessments until Ireland has paid back at least 75% of the bailout aid, in other words until 2031 at the earliest.
In the final monitoring report published on Friday, the troika warns: “The authorities have reconfirmed their commitment to bring the government deficit below 3% of GDP by 2015. However, this target is not yet underpinned by broad policy measures, and relies on the assumption of fiscal adjustment of around €2 billion (1.1% of GDP). Based on the Troika's forecast, a larger fiscal adjustment of around €2.5 billion (1.4% of GDP) is required to reach the deficit”.
The troika says: “Ireland has accumulated significant cash balances under the programme, while interest rates on Irish bonds have declined significantly. At the end of 2013, the cash balances are estimated at about €20 billion, which constitute a significant backstop against internal and external risks. In addition, a number of developments, including European decisions to extend loan maturities, have further contributed to supporting market sentiment and lowering the borrowing needs in the future”. Ireland will not need any preventive credit from the European Stability Mechanism, which would have come with strings attached. The country has returned to competitiveness, but challenges remain. The green shoots of recovery are slender, standing at 0.3% of GDP in 2013 and 1.7% in 2014, without making a dent in the unemployment figures. Budget consolidation is connected with growth, but growth is lower than expected, meaning that greater consolidation will be required. The troika recommends that structural measures must continue, along with policies to encourage job creation. Ireland is in quite a positive position on the financial markets at the moment, but the markets are volatile.
Vulnerabilities in the financial sector. The troika notes: “The high level of non-performing loans needs to be addressed as it creates uncertainty over the health of the banks' balance sheet. The relatively slow pace of completing sustainable mortgage and SME loan restructurings also weighs on banks' capacity to lend and support the economic recovery”.
Ireland's public debt remains unsustainably high, standing at 124% of GDP this year. Unemployment remains high, although it fell to 12.8% of the working population in the third quarter of 2013, more than two percentage points below its early 2012 peak. On Friday, the Irish government said that employment was its main concern. Noonan hinted in an interview with the Irish Times that, if the resources were available in 2015 or 2016, then income tax cuts might be possible for some groups. At a press conference on Friday, he said: “The real heroes and heroines of the Irish bailout story are the men and women who have coped with spending cuts, tax rises and other measures implemented over the last three years”. A high-ranking official explained that one of the keys to Ireland's success is the high level of public ownership of the programme.
Commenting on the departure of the troika's representatives, who have often been criticised, Noonan told the Irish Times that most people working for the troika were highly competent technocrats, but not very good at politics - referring to the ability to come up with measures that can win the broad public support needed to ensure a smooth functioning of the adjustment programme. (EL/transl.fl)