A big day for Ireland and for the euro zone
Ireland has announced that it will exit the EU bailout programme on 15 December. This is a very significant step – Ireland will be the first euro-zone member state to successfully wind up a support programme. The German government welcomes the decision of the Irish government.
The German government would like partners within the euro zone to continue to support Ireland in its efforts to achieve stability, employment and growth even after 15 December.
Germany and Ireland have agreed on an initiative. Together they aim to improve financing for the real economy. Ireland’s small and medium enterprises too are to gain easier access to financing. The Kreditanstalt für Wiederaufbau will launch cooperation with the Irish authorities without delay so as to achieve concrete results as swiftly as possible.
The support programme for Ireland expires at the end of this year. The country is well on the way to successfully winding up the financial assistance programme. Ireland will forge ahead with the effective reforms it has pursued over the last three years.
Impressive Irish reform programme
At the end of 2010 Ireland was the first euro-zone state to see itself forced to apply for financial assistance under the provisions of the European Financial Stability Facility (EFSF)/ European Financial Stabilisation Mechanism (EFSM). The banking and real estate crisis plunged the economy into chaos, investor confidence dried up, and the country found itself unable to borrow on the capital market.
The property-fuelled economic boom had harmed Ireland’s competitiveness. The subsequent recession was disastrous for jobs.
Since then the country has pursued an impressive reform programme to put its banks back on a sound footing, revive its economy and labour market and consolidate its budget on a sustainable basis.
Financial market recognises progress made by Ireland
Since the second half of 2012 Ireland has consistently expanded the access it enjoys to the capital market. Yields on ten-year Irish government bonds are now around 3.5 per cent. Interest rates are thus lower than in other EU states which have not been involved in the bailout programme.
Ireland has built extensive cash reserves to cover the expected requirements for the coming 12 to 15 months. This is another strong signal of confidence for the markets for the period after the ongoing support programme is wound up.
The draft budget for 2014 makes it quite clear that the Irish government will be forging ahead with reforms.
- Successful consolidation
The country has made tremendous efforts to consolidate its budget and has repeatedly more than met the targets laid out in the programme. In 2013 Ireland has committed to keeping its budget deficit down to a target of 7.5 per cent. In 2010 the figure was over 30 per cent.
- Improved competitiveness
Lower unit wage costs have allowed Ireland to become significantly more competitive. Its balance of payments has been in surplus again since 2010 (and is expected to show a surplus of 4.1 per cent in 2013).The economy of the country is recovering steady. Since 2011 the gross domestic product (GDP) has returned to growth. This trend is now also visible on the labour market, as unemployment drops gradually.
Structural reforms for sustainable growth
Ireland’s structural reforms aim to strengthen the country’s growth potential and underpin fiscal sustainability. To achieve a more flexible labour market, provisions on protection against dismissal were relaxed and the minimum wage regulations streamlined. The legal age of retirement is to be raised gradually to 68 by 2028. The Irish government is pushing ahead with privatisation and with efforts to establish a cost-covering national water utility.
The financial sector restructured
Over the last three years Ireland has done much to reform its financial sector and has strengthened the supervisory role of the central bank. Banks have been recapitalised in line with the stress test laid out in the programme. Alongside the Irish state, banks have returned to the capital market and can point to stable deposit holdings. Banks have thus been able to scale down refinancing via the central bank to a significant degree. The authorities are tackling the persistent problems with non-performing loans with a reform of private insolvency law, targets for balanced restructuring agreements and beefed up accounting rules.
Financial support for Ireland
Financial support for Ireland totals 67.5 billion euros.
EFSF (European Financial Stability Facility), EFSM (European Financial Stabilisation Mechanism) and IMF (International Monetary Fund) have together put up 62.7 billion euros.
The United Kingdom, Sweden and Denmark have together provided 4.8 billion euros in bilateral loans.
When the eleventh programme review is completed 66 billion euros will have been paid out to Ireland.
Ireland itself has contributed 17.4 billion euros to the programme from cash reserves and the national pension fund.
Friday, 15. November 2013