Analysts advise Noonan to take exit credit line
PRESSURE is being heaped on the Government to sign up for a so-called precautionary credit line, with Goodbody Stockbrokers and a leading financial news wire backing the move.
Goodbody warned the Government that not applying for the overdraft facility would be regretted, especially if next year's stress tests throw up the need for more capital to be injected into the State's banks.
The pressure comes amid speculation that the Government may go it alone.
Influential financial newswire Bloomberg published an editorial urging the Government to apply for a credit line and called on the troika to ensure the conditions are not onerous.
Goodbody economist Dermot O'Leary said a credit line was a form of insurance. "While it is indeed the case that Ireland can and will be able to fund itself at reasonable interest rates, the precautionary programme is meant to act as an insurance policy against unforeseen risks."
But Mr O'Leary also believes that a credit line would ensure fiscal discipline.
"We have been advocating a precautionary programme to ensure that policy discipline remains into 2014 in a number of areas," he wrote.
"Thirdly, it appears to us that European politics is playing as big a role in this decision as the wishes of Irish officials.
"We don't think that Irish yields will rise aggressively on this news, but if the reduction in policy scrutiny in 2014 does lead to slippage and/or the stress tests look like throwing up further capital requirements, a lack of a backstop programme may be regretted."
Bloomberg said it would be a "mistake" to go from bailout to full market access alone.
"Ireland sees its exit from the bailout and the demanding conditions that went with it as restoring the country's sovereignty," it said.
"It's impatient to break free. That's why the Government is hesitant to seek an emergency line of credit, which would again come with strings.
"This hesitation is understandable, but it's a mistake nonetheless. The Irish recovery is weak, and new setbacks are possible."
Broker Cantor Fitzgerald also said that while Ireland didn't need a backstop facility, a precautionary package would provide some form of insurance.
Ireland leaves the programme on December 15 and Mr Noonan has held a series of international meetings with the IMF and European leaders – including Eurogroup chair Jeroen Dijsselbloem earlier this week – to assess whether the country should apply for a credit line.
Crucial to any decision will be the level of conditions attached, which could be imposed even if the Government opts to apply for it but not draw down any money.
The Government has said the decision is "finely balanced", with the National Treasury Management Agency (NTMA) having already built up a €25bn buffer which Mr Noonan described as a significant backstop.
Fianna Fail leader Micheal Martin said a credit line would reduce the risks of holding Irish bonds and, as a result, cut the cost of borrowing for the State.
The issue is expected to be discussed at a meeting of European finance ministers in Brussels next week.