Prime Time - Bailout Exit Special

Thursday 09 January 2014 16.09
Prime Time - Bailout Exit Special

Robert Shortt blogs ahead of tonight's Prime Time Bailout Exit Special:

In a few short days, Ireland will officially exit the EU/IMF Programme of Financial Support for Ireland, also known as the Bailout. 

It’s been three years since the drama in a snowbound Government Buildings transfixed the nation. Much intrigue still surrounds the events which led to the Bailout. Indeed, there’s a great deal we don’t know. 

We know of the letter sent by the then ECB President Jean Claude Trichet to the late Brian Lenihan. We still don’t know its contents but we do know it strongly warned Ireland against forcing bondholders in our bust banks to take losses on their investments. We also know the IMF supported Ireland’s position in the negotiations but the ECB view prevailed. 

By contrast, the plodding pursuit of budgetary targets seems, well, a little less dramatic. There have been victories, hard won, along the way. Concessions on the interest rate charged on our Troika loans, the extension of the maturity on some of the loans and the deal on our promissory notes. 

None of these milestones was in of itself a moment for dancing in the streets but they do mark a gradual and profound sea change in both how Ireland is run and in Europe’s approach to the eurozone crisis.
 
First of all, the budgetary targets. 
It may seem incredible but during the boom, the Department of Finance regularly missed its forecasts for tax receipts. Now they come in, more or less, on target. That may seem a small point but there’s a big difference between those running the economy actually knowing what’s happening and a collection of head-scratchers buffeted by the winds of fortune.

There has also been a re-organisation of the Central Bank, which has regained its regulatory powers. Both the Central Bank and the Department of Finance have had outsiders appointed to run them. This was not part of the Bailout programme, but it’s been part of an overall change in how we run our affairs. 

Over the course of 2011, the first year of our Bailout programme, things started to change in Europe too. In the August of that year the single currency seriously looked like it would fall apart. Bond markets looked aghast at Italy. European banks started to look increasingly wobbly as worries about Spain and Greece intensified.
 
Politically, it started to sink in: It wasn’t just problems in the peripheral economies. This was a threat to the whole European project. 

In October of that year, Italian Mario Draghi took the helm at the European Central Bank. That’s when things really started to change. Bond buyback programmes pumped massive amounts of credit into European banks. Then in the summer of last year, Draghi unveiled his secret weapon: Outright Monetary Transaction or OMT. This as yet unused promise (or threat) to buy up as much of a eurozone nation’s bonds as necessary in times of crisis created a mythic monster that has –so far- kept the markets at bay. 

In our case, the deal on our promissory notes reached this year was the final step in ensuring our return to the markets. That was, and remains, the ultimate aim of the Bailout programme. 
That’s not to say everything’s rosy. We still have a barely sustainable debt burden and there’s still a long road ahead to negotiate any deal on our legacy bank debt. But the 15th December will mark a significant start.
Robert Shortt