Monday 20 November 2017


Q I'm confused. Is this another bailout?

A: No. The big difference between now and November 2010 is that we can fund ourselves on the markets. We needed the bailout three years ago because our borrowing costs were just too expensive. That's not the case any more. The so-called backstop is simply designed to reassure the markets and serve as an insurance policy if an unforeseen international crisis occurs that could drive up borrowing costs.

Q How will it work?

A: Europe's bailout pot, the European Stability Mechanism (ESM), has two smaller pots for cash under these circumstances – the Precautionary Conditioned Credit Line and the Enhanced Conditions Credit Line. The IMF also provides precautionary credit lines. In the case of the ESM, countries can apply to Dutch Finance Minister Jeroen Dijsselbloem for assistance, as he manages the pot on behalf of Europe. The European Commission then decides whether the country meets the conditions.

Q Okay, but there are no free dinners. So what's the catch?

A: That's what we still don't know. Michael Noonan said there would be no new conditions attached because there were already strict budgetary rules in force across all European countries that include more scrutiny of budgetary policy. But the rules say that states will be subject to "enhanced surveillance" by the European Commission, which can include "regular review missions" in some cases. Details about the interest rate should any money be drawn down under the facility are also not known.

Q So the Government's been talking out of both sides of its mouth? Full of talk about waving off the troika but now inviting them back in?

A: Yes and no. We'll be funding ourselves so we are leaving the bailout. But it seems clear that even if a country applies for a credit line but doesn't use it, that country is still bound by conditions including enhanced scrutiny.

Q So do we really need this backstop?

A: That's the great imponderable. Mr Noonan's argument is that we have access to the markets, but the credit line will help us stay in the market if some unforeseen international calamity occurs that drives up borrowing costs. Investors get jittery if there is the slightest chance a country might not be financially stable enough to pay its debts. The credit line is designed to ease that fear.

Q A bit like life assurance? You need it to get a mortgage but you hope you never need it?

A: Something like that – with the life assurance company insisting that you stay off the smokes and go for a health check every two years.

Irish Independent

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