Ireland to exit bailout without backup credit line
Ireland will exit its bailout program without the safety net of a precautionary credit line from international authorities, Prime Minister Enda Kenny said.
Ireland, which sought €67.5-billion (US$90.8-billion) of rescue funds from international creditors in November 2010, will leave the program on Dec. 15.
“This is the latest in a series of steps to return Ireland to normal economic, budgetary and funding conditions,” Mr. Kenny told lawmakers in Dublin Thursday. “Like most other sovereign eurozone countries, from 2014 we will be in a position to fund ourselves normally on the markets.”
Arriving in Brussels Thursday to tell his euro region colleagues of the Irish move, Finance Minister Michael Noonan said Ireland doesn’t need a precautionary line after amassing a cash pile of about ¤20-billion (US$26.92billion). While the decision avoids the fee and conditions that would be attached to a credit line, it also means the ECB’s bond-buying Outright Monetary Transaction program won’t be tested.
“While this has been well signalled, it’s good from a confidence point of view,” said Juliet Tennent, an economist at Goodbody Stockbrokers in Dublin. “Still, we would have liked to have had continued external surveillance that would have gone with a precautionary line. But it may be that the conditions being sought may have been too onerous.”
Spain too is on course for a “clean break” from its aid program, Economy Minister Luis de Guindos told reporters in Brussels. Like Ireland, Spain was hit by a real crash that prompted investors to shun its debt.
Spain took ¤41-billion in European aid for its banking industry last year out of as much as ¤100-billion that it originally requested as concern grew that mounting charges for souring assets linked to real estate at lenders, including Bankia SA, would contaminate government finances.
The credit line secured by the Spanish government for its lenders last year won’t be available anymore after the country exits the program, said a spokeswoman for the economy ministry who asked not be named, in line with government policy.
“The banking system is much more solid, much more solvent,” Mr. Guindos said. Ireland “must have done an analysis, in which it’s seen that effectively they have capacity to access the market. It’s good news for everyone.”
The yield on 10-year Irish government bonds has fallen over 560 basis points to 3.53% since the country first requested a bailout and its spread or difference with 10-year German bonds has fallen more than 460 basis points to 1.82%.
Spanish 10-year bond yields have also declined since their government requested aid, falling 215 basis points to 4.07%.
In the run-up to exiting the bailout, the Irish government has been building up its cash buffers. In March, the state sold ¤5-billion of a 10-year bond, its first such issue since the international rescue.