independent

Friday 18 April 2014

State's finances face long-term EU scrutiny, says report

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IRELAND will remain under significant scrutiny by the European Commission and the European Central Bank "for an extended period of time", an influential Brussels think tank predicts.

Additional post-bailout surveillance, which is more detailed than the checks applied to most other EU countries, will apply until three-quarters of our bailout debts are repaid, the group states in a report on how the troika performed in the four main bailout countries.

There will be regular review missions, which will then issue reports to the European and Irish parliaments, the Bruegel think tank's report says.

The Council of Ministers and the European Commission will then be able to tell the Government here to take policy measures to correct a development.

The independent Brussels-based think tank says the bailout was a success but warns that the Irish economy could shrink again if world trade fails to pick up and exports crumble.

It also warns that rising bad loans could destabilise the economy while zombie banks are a danger. The last big risk comes from a possible change in market sentiment against Ireland "following any potential macroeconomic shock or the discovery of substantial recapitalisation needs."

UNEMPLOYMENT

Irish banks, along with other European banks, face independent stress tests later this year .

The report concludes: "The citizens of Ireland had to make very significant sacrifices in the course of the programme."

Like many other observers, the Bruegel think tank seems to believe that bondholders should have suffered more. The head of Germany's central bank said recently that the Bundesbank wanted the Irish Government to wipe out loans from bondholders but found little support for this position from the ECB.

"The burden on citizens could have been made somewhat easier with the imposition of losses on senior unsecured creditors, but this would also have meant risks to the European financial system," says the think tank.

It says the changes made over the last few Budgets were done in a balanced way, which helped restore trust in the Irish public finances, and that Ireland was greatly helped by the decision to cut interest repayment rates.

The report, called 'The Troika and Financial Assistance in the Euro Area: Successes and Failures', also found that:

* Unemployment rose much more than expected.

* Debt-to-GDP ratios ballooned far in excess of expectations due to sharp GDP contraction.

* The Greek programme is the least successful one.

The think tank adds that Portugal's exit from the bailout this May "appears feasible" but says it should be accompanied by a precautionary credit line.

The authors conclude that it is too early to pronounce on the Cypriot programme, but adds: "There have been major collective failures of both national and EU institutions in the run-up of the programme."

Irish Independent

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