We'll need a €10bn bailout safety net
Published 06/09/2013 | 04:00
THE Government is looking for a €10bn overdraft from the troika when the country leaves the bailout at the end of the year.
The plan is to never have to use the cash, but the sum involved would be enough to cover all of next year's expected shortfall in government spending in the event of some unforeseen crisis.
Finance Minister Michael Noonan revealed the amount yesterday and said the details would be thrashed out with officials from the European Union, European Central Bank and IMF after the Budget.
It comes as Fine Gael and Labour remain divided on the scale of the tax hikes and cutbacks needed, with just five weeks to go to Budget day.
As the Cabinet met yesterday for the first time since the summer break, Labour stuck to its demands to keep the cuts below the €3.1bn agreed with the troika – but Fine Gael is warning against any substantial easing off.
Fine Gael is concerned that any reduction in savings could harm our reputation in the markets – and damage our chances of successfully exiting the bailout.
The €10bn facility will serve as an 'insurance policy' in case an unforeseen international crisis drives up borrowing costs. It would help bridge the move from bailout to being fully funded on the markets.
No other country in Europe has applied for the facility from the continent's bailout pot, the €500bn European Stability Mechanism (ESM).
News of the overdraft comes as the head of the 17-strong group of eurozone finance ministers, Holland's Jeroen Dijsselbloem, said Ireland would get support to exit the bailout programme.
Mr Noonan is hopeful that a deal on a credit line can be struck with no new conditions, claiming strict budgetary scrutiny on how states manage their finances are now already in place across Europe.
Whether Europe or the IMF will provide new support without insisting on continued strict supervision of Ireland's financial affairs remains to be seen, however.
"What it would mean is a credit line that we could draw on if we needed to draw on it," Mr Noonan said.
"We'd be hoping that we never have to draw on (it). It's just to have it there as comfort to the markets and then we fund on the markets."
Mr Noonan said the deficit in public spending – the gap between how much we spend and how much we take in through taxes – will be about €10bn next year.
"If we had a credit line equivalent to a full year's deficit, in other words around €10bn, then if something happens ... then we have a year's funding of the deficit to allow the thing work through," Mr Noonan said.
"That's how the precautionary programme would run.
"But my hope would be that it would just be there as a backstop to give confidence to our lenders.
"That we'd actually never have to use the precautionary credit line."
Europe offers two precautionary programmes – a precautionary conditioned credit line (PCCL) or an enhanced conditions credit line (ECCL) – through the ESM.
Both would be available for a year. The IMF also offers precautionary credit facilities.
Speaking to the Irish Independent at the Efficient Consumer Response Ireland annual conference in Dublin, Mr Noonan said the country was positioned to get fully funded on the markets.
Meanwhile, the Coalition remains divided on the €3.1bn adjustment target with just five weeks to go to the Budget.
The Cabinet discussed the Budget yesterday, with a spokesman for Tanaiste Eamon Gilmore saying he still believed the adjustment should be less than €3.1bn.
"That remains his position," he said.
The spokesman added that Labour supported the need to implement spending cutbacks – but no more than was necessary.
However, a spokesman for Taoiseach Enda Kenny (pictured) declined to put a figure on the Budget target.
He said there was a need to "hold our nerve" stating the single-biggest factor in the finalisation of the Budget would be the need to ensure that the country exited the bailout programme successfully.
"There are going to have to be savings made and measures proposed on people who have experienced a huge amount of difficulty already.
"That's an enormous challenge," he said.
It has raised the stakes ahead of the October 15 Budget, with Labour pushing harder for a reduction in the planned spending cuts and Fine Gael warning of the impact of any reduction on the perception of the country in the borrowing markets.
The Cabinet also discussed a response to the latest draft inspection report from the troika – which insisted that the Budget adjustment target of €3.1bn should be maintained.
By Colm Kelpie and Michael Brennan