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23rd Jul 2021

'We can't go mad again' - the reality as Ireland leaves its bailout

  • Noonan: 'We can't go mad again.' Ireland leaves its €67.5bn bailout on Sunday (Photo: Guimo)

Ireland will become the first eurozone country to exit a bailout on Sunday when it completes its €67.5 billion three-year programme.

However, those hoping that this brings an end to an austerity programme that has seen the country put in place over 270 separate cost-cutting measures will be disappointed.

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"This isn't the end of the road. This is a very significant milestone on the road," Finance Minister Michael Noonan said at a press conference on Friday (13 December), before adding that "we must continue with the same types of policies."

But while the move, which was announced last month by the Irish government, will make little difference in terms of economic policy, it is rich in symbolism for both Ireland and the EU.

"We get control of our own affairs again," said Noonan. Dublin will officially say goodbye to the so-called Troika - representing the EU, European Central Bank and International Monetary Fund.

But despite the upbeat words, neither Noonan or his successors will have as much freedom over national economic policy as their predecessors - a result not only of the bailout but also the eurozone's economic governance rules which have been substantially toughened up in the three years of Ireland's programme.

Although the Troika will not be making its quarterly inspections to make sure Ireland is sticking to its commitments, officials will still visit twice a year to check in, while the IMF's team will stay in the country for several years.

Meanwhile, like the rest of the eurozone, Ireland will be expected to submit its annual budgets for approval from the European Commission each year and to comply with a series of macro-economic indicators that go far beyond the bloc's limits on debt and deficit levels.

The story of Ireland's boom and catastrophic bust is a cautionary tale not just for the eurozone.

The 'Celtic tiger' was at one point Europe's top economic performer in the Noughties as businesses were attracted to its low tax and low regulation economic model. In the process, Dublin became one of the most expensive cities to live in on the back of an ultimately unsustainable property boom.

When the bust finally came, Ireland saw its budget deficit rocket to around 35 percent of GDP in autumn 2010 after it assumed responsibility for the liabilities of its banks. The result was a €67.5 billion rescue package, the second bailout for a eurozone country after Greece.

Unlike Greece, Ireland has long been held up as a paragon of virtue by the EU's economic leaders, a point which was amply underscored in statements welcoming the end of the Irish programme

For the EU executive, which has become increasingly sensitive to the charge that it has been more interested in cutting public spending and privatising state assets than in strengthening the economies of crisis countries, Ireland offers vindication.

"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," said European Commission president Jose Manuel Barroso in a statement on Friday.

"It is also a clear demonstration of what may seem obvious, but sometimes needs to be said explicitly: it is that an adjustment programme has a beginning and an end," remarked economic affairs commissioner Olli Rehn earlier this week.

"And the path between those two points is smoothest when there is determined implementation by the country concerned. This has been the case for Ireland."

The good news is that Ireland has every reason to believe that it will be able to stand on its own two feet with financial markets. Interest rates on ten year bonds now stand at 3.5 percent, way below the unofficial 7 percent threshold that determines whether or not a country can finance itself.

These low interest rates, together with the fact that Ireland's treasury has accumulated more than €20 billion in cash reserves, will ensure that it can meet debt repayments and funding costs until early 2015.

The country's economy is also on relatively firm ground. Figures released by Eurostat this week revealed that Ireland leap-frogged the Netherlands in 2012 as the third highest performing eurozone country in per capita terms.

The Commission's Autumn Forecast expects Ireland's economy to continue its recovery in 2014 and 2015 with GDP growth of 1.7 percent and 2.2 percent respectively.

The unemployment rate has also started to fall from a high of 15 percent and is expected to hit 12.3 percent next year. For its part, the Irish government claims to have created 58,000 jobs over the past year.

But the legacy of the bailout will loom large for years. Ireland's debt pile will peak at 125 percent this year lower only than Portugal, Italy and Greece in the EU, before falling to 121 percent and 119 percent over the next two years.

This means that Ireland's debt burden is a staggering five times larger than the 25 percent of GDP it was in 2007, before the financial crisis. It will take decades for the country's debt mountain to shrink back to pre-crisis levels.

"We can't go mad again," commented Noonan on Friday. Ireland has paid a high price for its short years of madness, and it will keep paying down the bill for many years to come.

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