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12 November 2013

WSJ: As Ireland exits bailout, a life vest or just lifeguard?


This analysis suggests it is now looking increasingly likely that the Irish government will opt for a so-called 'clean exit' from its bailout programme, without the 'life vest' of a precautionary credit line from the eurozone rescue fund.

If the Irish decide they want what is being termed a "clean exit", then that decision can be made at the upcoming ministerial meeting in Brussels, a senior EU official said Tuesday. Members of the Irish government, including Finance Minister Michael Noonan and his deputy Brian Hayes, note they have until December 15 to make up their minds. But when Mr Hayes briefed reporters in Brussels this week, his arguments tilted firmly to one side. "It is important that if you're back to the markets, you're back to the markets", he said. "It is important for everyone to see that the country is not lingering with some kind of additional programme with additional conditionality." The Irish government is eager to show that this time, whatever happens is its own choice. "No one is forcing us to do something here", Mr Hayes said. "This is Ireland's decision."

Germany, along with Finland, has made it clear that it doesn't want Ireland to ask for a credit line, according to officials familiar with the discussions among eurozone countries. Berlin fears that even a line that is never deployed would be seen as a second bailout, making Ireland look too much like Greece, which has had to return to the eurozone's rescue funds for more money once already—and may yet have to a third time. There is also the fear that lawmakers in Berlin might refuse to approve additional aid if Ireland doesn't increase its 12.5 per cent corporate tax rate—a condition that is a no-go for Dublin.

Renewed market turmoil could force Ireland to negotiate a quick rescue that would likely leave the government worse-off than if it prepared a credit line now. "That is the worst-case scenario", Mr Hayes conceded. But Mr Hayes said he's not that worried Ireland will be short of cash soon, pointing to a steep decline in Irish bond yields over the past year and some €25 billion in cash reserves the government has built up, partly through some smaller bond issues in recent months. "That essentially is our precautionary credit line", he said.

Mr Hayes hinted that Ireland might be eyeing a compromise deal, one that would avoid an aid request now, but still signal to markets that it won't drown even in rough waters. "There may be the option of a promise, a commitment to look at a precautionary credit line without putting it formally in place", he said. In other words: Leave the life vest at home, but keep the life guard on site.

Full article



© Wall Street Journal


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