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THE GOVERNMENT HAS today decided to go it alone and not avail of a precautionary credit facility when it exits the bailout programme next month.
In recent weeks the decision which faced the government and particularly Finance Minister Michael Noonan, who’s been seeking out the views of the EU and IMF, was whether or not Ireland should have funding available to it in the event that its cost of borrowing rises when the bailout ends on 15 December.
If the Irish government was to have accepted funding, or ‘a line of credit’ as it has been referred to, there would have been concerns about the conditions attached to having this funding available.
We have been given no detail on what those conditions might have been, but given that the government has had to operate under strict guidelines as part of the EU/IMF bailout programme in the last three years it’s fair to say that some of these conditions would have continued.
Equally it might have left the government open to accusations of bringing Ireland into a second bailout programme, which would have been a very easy and productive line of attack for the opposition parties.
So with all that in mind here are a few reasons why the government has made the decision it has…
It’s looking good out there
Unlike this statue, Irish bond yields are not creeping up
The yield on a 10-year Irish bond – i.e. the cost of borrowing money on the normal lending markets – is around 3.5 per cent which is pretty good when you consider that at their peak these bonds had a yield of nearly 15 per cent and were at around 8 per cent when we entered the bailout.
Ireland has been steadily returning to the the lending markets since 2012 with the NTMA holding a number of bond auctions that have seen high demand from investors.
For example in March, the NTMA hoped to raise €3 billion through the issuance of new 10-year bonds but actually sold €5 billion worth with lenders willing to offer up to €12 billion.
We have a bit of a back-up already
Through bond auctions and other measures the people who look after the money at the National Treasury Management Agency, the NTMA, have built-up a stockpile of €20 billion in cash reserves.
We can use this money to meet our commitments and funding costs until early 2015 which leaves Michael Noonan looking like this…
We’re hitting our targets
Having imposed a series of severe, austerity-laden budgets in the last few years the government has brought the deficit closer towards the 3 per cent of gross domestic product (GDP) target that is laid down under new EU rules.
The government is now targeting a deficit of 4.8 per cent in 2014 which is below the mandated target of 5.1 per cent.
This will ensure a primary balance and even a small surplus when the cost of servicing our loans is stripped out.
Ministers can also point to a raft of other economic data including the numbers on the Live Register falling, the economy growing (slightly) and jobs being created. That said, there are still major issues with household debt and particularly mortgage debt.
Angela Merkel and everyone else is okay with it
Michael Noonan has been touring the various offices of our Troika partners including the ECB, the European Commission and the IMF in recent weeks and all of them have given tacit endorsement to Ireland pursuing this course.
Even more importantly the German chancellor said "this was a decision for Ireland to make" according to the Taoiseach and the Germans are even hoping to help out by offering the assistance of a German development bank, KFW, to look at ways of lending to Irish SMEs.
It's a good political move
This is perhaps one of the main reasons why the government decided to go it alone.
Politically this looks great for the Fine Gael/Labour coalition in being the two parties in government that led us out of "the mess" that Fianna Fáil dragged us into, in their words.
"Historic day", "sovereignty regained", and "standing on our own two feet" will be just some of the terms we will hear in the coming weeks before 15 December when the programme ends.
When we wake up on 16 December nothing will have changed from a practical point of view for Irish citizens.
Mortgage debt will not disappear, those who are unemployed will not suddenly have jobs, those who have decided to emigrate won't suddenly cancel their plane ticket.
"It won’t mean that our economic and financial challenges are over,” Kenny said today.
But don't expect the government to let 15 December pass without noting that the Troika are gone (even though they're not really) and Ireland has regained its sovereignty.
Pics: Photocall Ireland
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Wow… who’d have thought charging c.400% tax on a product would incentivise a black economy in that product?
It was always going to happen with the continued increases in tax. Tax needs to be reduced but that wont happen so this will just get worse. Average levy on cigarettes in EU is 3.50. We charged 8 per box of 20. That’s just mental.
@John Duggan: The tax is because of health issues. If you didn’t know smoking is bad and ends up costing the state who have to provide public health care ..
@Alan Kenny: all in taxes and levies are more than €11 on an average €14 box of cigarettes. It’s not just mental, it’s egregious.
@Gavin Lynam: Do you have some figures on what smokers cost the health system, versus what they generate in taxes?
@Gavin Lynam: Obesity causes issues too, so maybe a 400% tax on all take away foods and restaurants then ? Like the way the sugar tax fixed so much.
@Gavin Lynam: i am pretty sure that you believe in fairies and dragons as well.
@Da Dell: And a tax on frozen food/pizzas in supermarkets and any product that contains any trace of unhealthiness. Also put a health levy on driving cause people are too lazy to walk which is costing the taxpayer in health costs.
So much for personal responsibility and personal freedom. These taxes do very little to improve peoples’ health. Irish people constantly think in terms of how much money they could generate but aren’t thinking about the education aspect. Education is the key to everything but we aren’t too fond of that here, clinging on to our traditional leaving cert and not teaching many real world skills or education.
@JusticeForJoe: Money isn’t the issue
@Larsen Cib: Still haven’t grown out of your superhero faze I see ..
@JusticeForJoe: smokers cost the state around 300 million more than they contribute in taxes every year.
@Alan Kenny: an the same will happen with wine an beer ,.
@Fakë Ăvatăř: do you have a source for that?
@Ian Kerrigan.: I compiled the data as part of a project about two years ago, the figure ranges between 3 to 4 hundred million a year going from 2010 to 2018, long and short of it is smoking is a drain on economy.
@Fakë Ăvatăř: utter b0ll0x
@Fakë Ăvatăř: that’s interesting because it’s been reported that smokers give over 30 million beyond what they cost the exchequer. So unless you can provide evidence I’m not going to believe you over economists on the matt Cooper show.
@Fakë Ăvatăř: During that period smokers contributed on average 1,200M each year in combined excise duties and tax. In other words, they paid for all of their own health costs and gave a further €800M for the health of others.
(Figures supplies by the Revenue Commissioners).
Nobody should be suprised… Tax anything that much and its basically an open invite to criminals in the black market…There is other ways but the tories we have in charge aren’t capable of thinking outside the box
Legalise and regulate. If it was legal there’d be none of these criminal enterprises. Oh wait…
@Mattress Dick: Unfortunately the biggest gangsters in the country are the ones regulating this industry, the main crime here is the tax is circa 80% of the purchase price.
@Mattress Dick: Yes you right, better to leave as is, as its easy to get and cheap plus added bonus of having access to nearly all ‘drugs’ from same source. If the Gov got involved they would just make a balls of it.
@Mark Malone: pretty much this.
@Mattress Dick: there you are again. Great support for the cause of legalisation. Dick says legal is better.
Pretending that the tax is for the health system is a joke. Today’s children are much better educated about the dangers and yet during the pandemic there has been an increase of young people smoking
@Ian James Burgess: unfortunately naive , not far thinking people do believe in these fairy tales.
The profits from tobacco smuggling are on par with those from drugs, but the penalties for getting caught are a laugh. Basically a smack on the back of the hand.
Why don’t they follow these drug finds back to make mass arrests. Seizing stuff at the ports is lazy and unimaginative.
They haven’t gone away, you know.
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