Ireland’s fiscal progress and Europe’s desire to demonstrate that austerity and structural reform programmes work, should ensure that Ireland becomes the first bailed out nation to exit a programme. The exit is expected on time and in an orderly fashion.
When Ireland exits its current programme, fiscal autonomy will not be fully restored and the Government is likely to apply for two separate post bailout backstop facilities:
- A European Financial Stability Fund (“EFSF”) precautionary programme supported by the Eurozone
- Outright Monetary Purchases (“OMT”) supported by the European Central Bank (“ECB”)
Although recent domestic macro-economic trends have weakened Ireland’s position the recent pick-up in global growth will, if it continues, ensure that Ireland’s positive progress will be maintained.
The vicious circle of weak consumer confidence, poor domestic demand and poor supply of credit still needs to be addressed. Some of these developments are beyond any formal policy measure but for consumer confidence to return, a realistic and clear assessment of planned spending and austerity as well as articulation of Ireland’s longer term debt/GDP target based on conservative forecasts needs to be provided.
The timing and implementation of policy decisions from austerity measures to bond issuance has been a major positive, much to the credit of government and state agencies.
Irish Government bonds are unlikely to see any significant under-performance in the medium term and should continue to trade between 2% and 2.5% above German Bunds.
Ireland’s positive funding position means the government should not be affected by weakness in capital markets.
As a small open economy, Ireland remains well placed to take advantage of any sustained European or indeed global economic pickup.
Irish residential property prices have broadly stabilised and are increasing in some locations around the country.
Irish unemployment rates have recently fallen from a 15% peak to a current level of 13.7%.
Irish inflation has consistently under-performed both European inflation and also the European Central Bank’s theoretical 2% target.
The stability of the coalition government places Ireland in a better political environment than many other European countries.