DUBLIN (Reuters) - Three years after going cap in hand to international lenders, Ireland got the green light on Thursday to step out on its own as the first euro zone country to exit its bailout programme.
The European Commission, European Central Bank and International Monetary Fund signed off on the last part of the 85 billion euro ($114 billion) aid programme, paving the way for Ireland - which has met all major targets - to complete it by the end of the year.
It is a much-needed success story for Brussels, which needs to show its austerity medicine works, but may not be a precedent for other bailed out euro zone states as Ireland had few of the structural problems facing Greece or Portugal.
“This is a significant day that many thought, and some feared, would never be reached,” Noonan told reporters. “There are difficulties and we will continue, but the responsibility is being passed back now to the Irish government.”
The main issue remaining is whether the government will take out an insurance policy of asking for a precautionary credit line when the bailout ends. It has indicated it may go it alone as it has funding into 2015 and Finance Minister Michael Noonan said it was still an “open question”.
Speaking in Frankfurt, ECB President Mario Draghi said the decision lay in Dublin’s hands although he believed prudence was in order.
“The ECB and in general the other institutions, the IMF and the Commission, would say that certainly it would be useful to have a precautionary programme in place,” he told a news conference.
“But it’s also true that the success has been quite significant so it’s up to the Irish authorities to decide what they want to do and we certainly wouldn’t want to interfere.”
The country of 4.6 million has endured five years of austerity with little of the unrest that has rocked Greece and Spain since the burst of the “Celtic Tiger” property boom. That had forced the state to rescue wrecked banks and resulting debts pushed it to seek aid from its EU partners in 2010.
Officials from the lenders, known as the “troika”, became almost part of the furniture in the upscale hotels around Dublin’s government buildings.
“We built up good personal relationships and they kind of became honorary Irish people, they worked above and beyond the call of duty in the interests of Ireland,” Noonan said.
The government has regained some market access - highlighted by a 10-year bond issue in March - and borrowing costs have fallen steadily from a 2011 peak. But forgoing a precautionary line could leave it vulnerable to market shocks and unable to access the ECB’s government bond purchases scheme.
Noonan said there was still no decision on the credit line and it would be taken before the formal exit date of December 15.
The Irish economy pulled out of recession in the second quarter of this year but still faces challenges, with unemployment above 13 percent and spending depressed by salary cuts and tax hikes. House prices are still nearly 50 percent below their 2007 peak, though have begun to pick up in Dublin.
Government forecasts show Ireland needs to expand by an annual 2-3 percent annually to make its debt sustainable but it expects just 0.2 percent growth this year and barely 2 percent next.
“I don’t think people will be breaking out the champagne tonight when they’ve got property tax bills coming in the letterbox. It’s still pretty tough out there,” said James Herlihy, a financial services worker in his late 30s.
Concerns also persist over the health of Ireland’s banks and the lenders are reviewing the quality of their assets - an exercise conducted in advance of Europe-wide stress tests next year - before giving the final all clear to exit the bailout.
The IMF mission chief for Ireland, Craig Beaumont, said Irish banks were making good progress albeit with significant work still ahead and the most important challenge ahead is the high level of unemployment.
“My message is that Ireland’s programme will become an example that we will learn from in the future,” Beaumont said.
Editing by Jeremy Gaunt