Ireland to Exit Its Bailout, and Without a Safety Net

<div xmlns='http://www.w3.org/1999/xhtml'><img src="http://graphics8.nytimes.com/images/2013/11/15/business/international/15irishdebt/15irishdebt-articleLarge.jpg" width="600"/><br /><p>LONDON - Ireland announced on Thursday that it would make a clean break from its international bailout program next month and do it without first seeking a precautionary credit line.</p><br /><p>Ireland would become the first of four euro zone bailout nations to end its reliance on huge loans made during the worst months of the debt crisis. Ireland's bailout program will have totaled 67.5 billion euros or $91 billion.</p><br /><p>Ireland is seen as the best-performing of the four bailed-out economies; the others are Greece, Portugal and Cyprus. Its return to economic normalcy is an important psychological moment for Europe's single-currency zone, which is spasmodically emerging from its near-death experience.</p><br /><p>Ireland's decision to improvise without a prearranged credit line from international lenders was seen as especially daring given Europe's shaky economic stance. The economy of the euro zone - the 17 E.U. members that use the euro - stagnated in the third quarter as output slowed in Germany, Europe's largest economy, and declined in France, the second-largest, Eurostat, the European Union's statistical agency, reported on Thursday.</p><br /><p>Jonathan Loynes, chief economist at Capital Economics in London, said the gross domestic product report was 'a clear blow to hopes that the period of market stability seen over the last year or so would translate into a solid and sustained economic recovery.'</p><br /><p>Ireland's banks are still laboring under a mountain of bad debt incurred during the property boom that preceded the country's economic crash, and extra capital may still be needed.</p><br /><p>But a credit line might have come with conditions attached, and the Irish government said that, after discussions with other governments and with Chancellor Angela Merkel of Germany, it was confident it could manage a full return to economic sovereignty without the need for a special credit line.</p><br /><p>In a statement, the Irish government contended that, having already raised some money on the bond markets, it held €20 billion, or $27 billion, in cash reserves that could be used to meet maturing commitments and funding costs until early 2015. The interest rates on its sovereign debt are low and public finances under control, it added.</p><br /><p>'This is the right decision for Ireland, and now is the right time to take this decision,' Enda Kenny, the prime minister, told the Irish Parliament. 'This is the latest in a series of steps to return Ireland to normal economic, budgetary and funding conditions.'</p><br /><p>Within the euro zone, there had been an intense debate over whether Ireland should request a credit line. Some said doing so would set a precedent and subsequently make it easier for other nations, like Portugal, to leave bailout programs with a credit line.</p><br /><p>The decision to do without a credit line was also seen as a statement of confidence in the Irish economy and was welcomed by Christian Schulz, senior economist at Berenberg, who said Ireland could afford to 'go it alone.'</p><br /><p>'Markets have been giving Ireland, much earlier than the Southern European countries, the benefit of the doubt.'</p><br /><p>Mr. Schulz added that a successful Irish exit from the bailout program could lift Portugal's prospects of regaining its economic sovereignty next year, possibly with some transitional help from international lenders. The four countries received bailouts from the troika of international lenders: the International Monetary Fund; the European Commission, which is the European Union's administrative arm; and the European Central Bank.</p><br /><p>But economists are still concerned about the strength of the overall European economy and the latest G.D.P. figures did little to assuage that. The overall European Union, made up of 28 countries, grew 0.2 percent from the second quarter, and 1 percent on an annualized basis, Eurostat said.</p><br /><p>On an annualized basis, Europe's 0.4 percent growth compares poorly with the United States' annualized 2.8 percent third-quarter growth and the 1.9 percent Japan reported on Thursday. China, the world's fastest-growing major economy, expanded at a robust 7.8 percent rate in the third quarter.</p><br /><p>In Germany, growth in the three months that ended in September amounted to an annualized rate of 1.2 percent. France experienced a decline of about 0.4 percent. There was some positive news, as Spain and the Netherlands broke out of recession with 0.4 percent gains, and Britain led major European Union economies with 3.2 percent growth. But Italy continued to limp along with a 0.5 percent quarterly contraction.</p><br /><p>Some Irish ministers did say publicly that they did not want to accept new economic conditions, beyond the steps they were already committed to taking under the bailout, in exchange for a standby credit line.</p><br /><p>Ireland has been seen as a laboratory for the type of austerity measures favored by some Northern European creditor nations like Germany.</p><br /><p>Christine Lagarde, the I.M.F. managing director, said on Thursday that the Irish authorities had established 'a very strong track record of policy implementation.'</p><br /><p>'This bodes well as Ireland exits its E.U.-I.M.F.-supported program,' she said in a statement. 'Although uncertainties remain in Europe and the global economy more broadly, Ireland is in a strong position in terms of its bond yields and has built a sizable cash buffer. We look forward to continuing to work with the authorities as they address the challenges that remain.'</p><br /><p>By quitting the bailout scheme, Ireland will become fully reliant on bond markets to help finance its continuing operations and make good on payments to investors who have bought its debt.</p><br /><p>But Ireland's existing loans to those international lenders will still need to be paid back and these repayments will take many years to complete, with the final one due in 2042.</p><br /><p>Ireland has already tested its market access with some bond issues and in March sold €5 billion worth of 10-year bonds. The yield on the debt was 4.15 percent.</p><br /></div>

Business Ireland to Exit Its Bailout, and Without a Safety Net

LONDON - Ireland announced on Thursday that it would make a clean break from its international bailout program next month and do it without ...

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