8/12/2013: Exiting EFSF: Check.

So it's official - today we exited EFSF http://www.efsf.europa.eu/about/operations/ireland/index.htm

As I said on twitter: this is a big first step for Ireland. There are many more to be taken in the future, long future... from EFSF's perspective - we are not free until 2042...

What is worth noting in the above table is the extent to which the EFSF has already managed to restructure our debts - maturities extensions mean that the earliest repayment date - previously falling on 04/02/2015 now falls on 01/08/2029. That is a massive restructuring of debt, which, taken together with other changes, explains why we were able to avoid an outright default to-date.

Another thing to note: from my personal perspective, there is a sizeable chance, I and many of my friends (for some that chance is even greater), will not be here to toast the day when Ireland finally repays (or rather rolls over) the full EFSF debt. That's a 'generation lost'... right there... touch it... give it a hug... its us.

28/11/2013: To OMT or not to OMT?

Per Irish Times report (http://www.irishtimes.com/news/politics/ecb-warns-bailout-exit-limits-ireland-s-options-1.1608426) "In remarks to The Irish Times, ECB executive board member Jörg Asmussen said leaving the bailout without a credit line meant Dublin did not meet conditions for the bank to buy Irish debt under its bond-buying programme." He is referencing OMT programme.

We knew that. Despite the fact that just a week ago, Minister Noonan claimed that "leaving the bailout without a precautionary credit line neither rules Ireland in nor out of accessing the ECB's Outright Monetary Transactions (OMT) programme. It has been speculated that going it alone without the safety net of a credit line would ban Ireland from the ECB scheme. "There is a misunderstanding in Ireland, even at the highest level of economic thinking, about OMT," Mr Noonan told TDs yesterday." (http://www.independent.ie/business/irish/we-can-still-access-ecb-aid-noonan-29771886.html)

Ouch...

Note: I wrote about this problem two weeks ago: http://trueeconomics.blogspot.ie/2013/11/15112013-exiting-bailout-alone-goods.html. I was clearly 'misguided'...

17/11/2013: Ireland to Remain Subject to EU/ECB Oversight post-Exit

On may occasions I have stated that Ireland will remain subject of the enhanced supervision by the EU and ECB of its fiscal policies following our exit from the 'Troika bailout'.

Minister Noonan this week confirmed as much: http://www.irishexaminer.com/ireland/troika-to-keep-eye-on-ireland-for-20-years-249851.html

Here's the relevant legislation governing our required compliance:

Regulation (EU) No 472/2013 of the European Parliament and of the Council
of 21 May 2013
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32013R0472:EN:NOT
pdf link: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:140:0001:0010:EN:PDF

Emphasis in bold is mine:

Article 14: Post-programme surveillance

1. A Member State shall be under post-programme surveillance as long as a minimum of 75 % of the financial assistance received from one or several other Member States, the EFSM, the ESM or the EFSF has not been repaid. The Council, on a proposal from the Commission, may extend the duration of the post-programme surveillance in the event of a persistent risk to the financial stability or fiscal sustainability of the Member State concerned. The proposal from the Commission shall be deemed to be adopted by the Council unless the Council decides, by a qualified majority, to reject it within 10 days of the Commission's adoption thereof.

2. On a request from the Commission, a Member State under post-programme surveillance shall comply with the requirements under Article 3(3) of this Regulation and shall provide the information referred to in Article 10(3) of Regulation (EU) No 473/2013.

3. The Commission shall conduct, in liaison with the ECB, regular review missions in the Member State under post-programme surveillance to assess its economic, fiscal and financial situation. Every six months, it shall communicate its assessment to the competent committee of the European Parliament, to the EFC and to the parliament of the Member State concerned and shall assess, in particular, whether corrective measures are needed...

4. The Council, acting on a proposal from the Commission, may recommend to a Member State under post-programme surveillance to adopt corrective measures. The proposal from the Commission shall be deemed to be adopted by the Council unless the Council decides, by a qualified majority, to reject it within 10 days of the Commission's adoption thereof.

Note: you can track my analysis of the 'exit' announcements following the links posted here: http://trueeconomics.blogspot.ie/2013/11/15112013-beware-of-german-kfw-bearing.html

15/11/2013: Beware of German (KfW) Bearing Gifts?..

As reported in today's press, Ireland has secured a sort-of backstop to its exit from the bailout via an agreement with Germany's state- and local authorities-owned KFW Development Bank (see: http://www.irishtimes.com/news/politics/kfw-is-a-public-bank-providing-development-loans-at-lower-interest-than-commercial-rates-1.1595460 and http://www.irishexaminer.com/ireland/bailout-a-calculated-political-gamble-that-just-might-not-pay-off-249727.html). This was blessed by Germany (http://www.independent.ie/business/irish/merkel-backs-ireland-bailout-exit-without-overdraft-29754656.html). And it may or may not qualify as a backstop for the Exchequer (see speculative analysis here: http://www.irishexaminer.com/archives/2013/1115/ireland/bailout-exit-declaration-exaggerated-half-truth-249716.html).

One can only speculate as to the possible conditionalities imposed by Angela Merkel and her potential coalition partners on Ireland under the exit deal, but here's an interesting parallel development that has been unfolding in recent weeks.

Per reports (see for example this: http://uk.reuters.com/article/2013/11/14/uk-eu-banks-idUKBRE9AD0X820131114 and this: http://uk.reuters.com/article/2013/11/15/uk-eurozone-banks-backstops-idUKBRE9AE08G20131115 and this: http://uk.reuters.com/article/2013/11/14/uk-ww-eu-banks-idUKBRE9AD15520131114 and this: http://www.irishtimes.com/business/economy/spd-rules-out-deal-on-banks-legacy-debt-1.1595352 and this: http://www.euractiv.com/euro-finance/germany-opposes-rescuing-ailing-news-531713):

1. Germany is clearly stating and re-stating its position on use of EU funds to recapitalise the banks (forward from the stress tests to be conducted). The position is 'No Way!' Wolfgang Schauble is on the record here saying "The German legal position rules out [direct bank recapitalisation from the ESM, the eurozone bailout fund,] now…That's well known. I don't know if everyone has registered that." So it is 'No! No Way! I said so many times!' stuff.
2. Euro area Fin Mins are moving toward using national (as opposed to European) funds to plug any banks deficits to be uncovered in the stress tests.
3. SPD Budget Spokesperson clearly states that his party is firmly, comprehensively against use of euro area bailout funds to retrospectively recap banks (the seismic deal of June 2012 is, in their view, not even a tiny wavelet in the tea cup).

Now, Ireland is the only country seeking retrospective recap and it is bound to have come up in the Government talks with Germans and the Troika in relation to bailout exit.

Put one and one together and you get a sinking feeling that may be retrospective recaps were the victim of the Government 'unconditional' solo flight from the Troika with KfW sweetener to comfort the pain of EUR64 billion in possible retroactive aid in play?..

Note: I am speculating here. It might be just that the Germans (KfW) decided to simply recycle their trade surpluses into another property err... investment bubble inflation in the peripheral states cause they just were so delighted with the way we paid off their bondholders. Or it might be because they are keen on burning some spare cash. Or both. Or none. If the latter, the reasons might be that it bought them cheaply something they want... How about that retroactive banks debt deal? It's pretty damn clear they want that off the table, right?

You can read my analysis of the exit here: http://trueeconomics.blogspot.ie/2013/11/15112013-exiting-bailout-alone-goods.html and see Ireland's credit risk score card here: http://trueeconomics.blogspot.ie/2013/11/15112013-ireland-some-credit-risk.html and fiscal risk assessment here: http://trueeconomics.blogspot.ie/2013/11/15112013-primary-balances-government.html.

15/11/2013: Primary Balances: Government Deficit Risks

While looking at Ireland's risk dynamics relating to our exit from the Bailout (covered here:  http://trueeconomics.blogspot.ie/2013/11/15112013-ireland-some-credit-risk.html) it is useful to think about the Government deficits ex-interest payments on debt. Here are the latest projections from the IMF:

For now, Ireland is running behind Portugal. By end of 2014, we are expected to overtake Portugal, but thereafter we are expected to remain behind Italy and Greece.

Not exactly a risk-free sailing there for the so-called 'best student in class'... Still, we are heading to posting our first crisis-period primary surplus.

15/11/2013: Exiting the Bailout Alone: 'Goods', 'Bads' and Risks

So Ireland is exiting the bailout without a precautionary line of credit. The news is big. And the news is small.

Small on positives, albeit tangible:

1. Markets got more certainty that any pricing will be a signal - absent a back stop, pricing signalled by the bonds markets is more likely to be the true pricing of debt. Caveat: NTMA's EUR 20 billion+ credit pile-up is likely to still muddle the waters. At last for a while, we are pre-funded.
2. The markets were told by the Government that, like the FF/GP Coalition before them, the current shower can make statements. Whether they can live up to them (see 'bad' points below) is another game.
3. We avoided the unknown to us 'conditionalities' that attached to the pre-cautionary line of credit - be it Precautionary Conditioned Credit Line (PCCL) or the more strict Enhanced Conditions Credit Line (ECCL) (see points below as to the cost of this avoidance).
4. IMF will be gone from the Government Buildings (although it still will be monitoring our performance from the sidelines with bi-annual reviews and the EU 'partners' will still be visiting the Merrion Street).

Small and potentially large negatives, many not yet tangible:

1. Reforms reversals pressures are bound to set in: with elections coming up, trade unions and other lobbyists (yes, that's right - the all are lobbyists) will be pressuring the Government to cut back on 'austerity'. In other words, we are going to see the return of the 'Galway Races' in a slightly less in-your-face form. Taxpayers be warned - fiscal discipline can start drifting even more toward tax extraction away from spending cuts.
2. Reforms fatigue is likely to follow: Irish Government to-date has failed to deal forcefully with the issues of domestic reforms. Interest groups and powerful vested interests they represent are lining up on the starting line to make sure they will continue extract protection from the State in exercising their market power. Consumers be warned - semi-states and protected professions will continue ripping us off.
3. Risks to the fiscal, financial sector and macroeconomic conditions are not going away. Just spot the decline in our goods exports: January-September cumulative exports are down from EUR70.12 billion to EUR65.41 billion year on year. The timing for our exit is fine, but the risks are still there.
4. Creeping up of the longer-term borrowing rates can take place, both in-line with expectations for the future rates policy by the ECB and in pricing in any risks to the macro and fiscal sides.
5. Stepping outside the tent with Troika reduces the pressure that the IMF can apply on our 'partners' in supporting any retrospective banks debt deal.
6. IMF leaving the oversight system (the latter won't go away per 2-6 packs legislation we have signed up to) means we are seeing the back of our only 'protector' in the Troika. Good luck expecting the EU and ECB taking the side of the Irish economy on fiscal and structural reforms policies.
7. Having exited without PCCL or ECCL, we do not qualify for the OMT - the famed and fabled 'silver bullet' from the ECB that was supposed to act as the fail-proof measure for risk management and crisis blowout prevention.

What can we - consumers and taxpayers - expect (these are uncertainty-laden assessments, based on current track record of the Government and internal coalition politics, so they are subject to possible change):

1. Higher costs of semi-states' services to ordinary punters as the protected sectors remain protected and are used increasingly to shore up public finances;
2. Higher costs of financial services as banks ramp up their power vis-a-vis the Government;
3. Higher taxes and charges as reforms policy drifts lifelessly from spending cuts to revenue raising;
4. Higher cost of debt roll-overs in the longer run as markets price in fully the level of debt we carry;
5. Lower competitiveness in the long run and more reliance on the old favourites (property, Government spending and consumption) to drive growth.

May we have good luck avoiding the above 'bads' and risks and enjoying the above 'goods'...

Update: The best headline of the affair award goes to Bloomberg: http://www.bloomberg.com/news/2013-11-15/irish-go-commando-as-noonan-draws-line-under-crisis-euro-credit.html