Saturday 3 December 2016

Budget discipline must continue as Troika exits

Seeking a standby arrangement would demonstrate prudence rather than weakness, writes Colm McCarthy

Published 03/11/2013 | 02:00

DECISION TIME: Public Expenditure Minister Brendan Howlin and Finance Minister Michael Noonan
DECISION TIME: Public Expenditure Minister Brendan Howlin and Finance Minister Michael Noonan

The Government has yet to decide whether to seek some form of continuing access to non-market loans from the EU and IMF when the full €62bn in official finance is drawn down at the end of 2013. The end of the Troika lending programme means that all of the State's borrowing needs, to repay maturing debt and to finance the continuing budget deficit, must henceforth be met entirely from market sources. This is the downside of regaining 'sovereignty'.

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Ireland's ability to survive in the markets, without any further support from official lenders, depends on three critical factors. The first is the willingness of the Government to eliminate the budget deficit and thus the risk that the debt keeps growing. The second is the avoidance of new contingent liabilities, for example for future bank rescues. The final item is the availability of a backstop or standby arrangement from the official lenders, should there be unforeseen problems in the sovereign debt market.

The Troika is due to depart on December 15, but it is a terrible mistake to imagine that this somehow sets Ireland free to pursue whatever budgetary policy takes the politicians' fancy. You cannot spend what you cannot borrow, and from 2014 onwards, the Government will be constrained by the willingness of the sovereign credit market to finance the State.

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