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Monday 23 July 2018

Accessing the overdraft: For & Against

Colm Kelpie

Colm Kelpie

IRELAND has not accessed the international money markets on a full-time basis since before the bailout in 2010.

Economists and analysts believe that having an overdraft facility in place when we leave the EU/IMF programme at the end of the year is simply prudent financial management.

Why go cold turkey from bailout to full access without having some form of programme to smooth the transition?

The so-called precautionary credit line could come from either Europe through its €500bn bailout pot, the European Stability Mechanism, or the International Monetary Fund. It would also serve as a safety net if some unforeseen international calamity occurs which could push up borrowing costs for the State.

The Government has said that if we apply for it, the expectation is that we'll never have to use it.

The hope is that if we take it, its very presence would reassure the markets which in turn would keep our borrowing costs down.

AGAINST:

The State's debt management agency, the National Treasury Management Agency (NTMA), has built up a cash buffer of about €25bn.

So when we leave the bailout, we already have that cash pile stocked up which Finance Minister Michael Noonan said is a significant insurance policy in itself.

Politically, taking a precautionary credit line may be a hard sell.

It is likely to come with potentially tough conditions which Mr Noonan has already said may be "unacceptable" to the state.

"Some of our partners in Europe are talking about conditions that would be unacceptable to us," he said publicly last Thursday.

Not taking it would also reduce the level of oversight here by troika officials, bolstering the Government's claim to have restored the State's finances, and sovereignty.

But there are unknowns. So-called stress tests will be carried out on the banks next year which could potentially flag up the need to inject more capital.

The international markets may also not react as positively to Ireland if we don't have a credit line in place.

And although we might avoid strict conditions being imposed on us, under new European budgetary rules, an enhanced level of surveillance by European officials will continue anyway.

Irish Independent

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