Monday 22 January 2018

Key to restoring State's credibility is the elimination of our budget deficit

Small EU states that had the good fortune to stay out of the eurozone are now in a superior position to us, writes Colm McCarthy

The outline of the Government's negotiating strategy with the EU is beginning to emerge. It appears to seek three concessions.

The first is a reduction in the interest rate charged on the EU portion of the official lending to Ireland, mainly to finance the budget deficit over the next few years and which will total €45bn by the time all of it has been disbursed. The second is a relaxation of the apparent ECB veto on haircuts for bank bondholders, or at least for some categories. Both of these forms of relief were debated at length during the recent election and both are worth pursuing.

The final component is less familiar. The Irish banks have been unable to borrow in the commercial markets on any terms since last autumn, even earlier in some cases. They have been losing deposits and have resorted increasingly to short-term funding from the European Central Bank and the Irish Central Bank. Hints from ECB officials late last year that they were unwilling to continue funding played a major role in undermining whatever creditworthiness the Irish banks had left and helped to make resort to the IMF/EU bailout unavoidable.

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