CEIC News@lert: Ireland Achieves Exit from Bailout Programme

February 7, 2014 - As one of the hardest hit countries in Europe by the U.S. sub-prime mortgage crisis, Ireland was the first to ask for help from international creditors. In 2010 the country faced a troubled banking sector, a soaring budget deficit and, as a consequence, a massive downturn in economic activity. The resultant fall in investor confidence pushed up Irish borrowing yields and the country’s sovereign credit rating was downgraded to “junk” status, so Ireland was no longer able to raise capital on the private debt markets. Thus, Ireland was bailed out by the Troika of the European Commission, European Central Bank and the International Monetary Fund, receiving a package of EUR 85 billion and put into a supervision programme in order to ensure the adoption of sound fiscal policy that promotes economic stability. Three years after these notorious events, the country is already on the path to recovery and at the beginning of 2014 it officially exited the bailout programme, thus requiring no further credit lines in order to support its public finances. The clean exit Ireland has managed to achieve is owing to the stringent fulfillment of the targets initially set by the Troika which led to the strengthening of the country’s macroeconomic fundamentals. Real GDP increased during the third quarter of 2013 by 1.67% year on year (yoy), in stark contrast to the 0.4% yoy average decline for the Euro Area which was weighed down by other poorly-performing states. Ireland’s fiscal deficit was 8.2% of GDP in 2012 (according to the latest available data), which was below the target level of 8.6% and expectations are for the budget deficit to decrease further; the European Commission’s latest (autumn 2013) forecast foresees it reducing from 7.4% of GDP in 2013 to 5% in 2014 and 3% in 2015. These positive developments have contributed to increasing investor confidence, which has allowed Ireland to successfully issue bonds, even in 2013 while it was still operating under the bailout programme. The 10-year government bond yield has been steadily decreasing and in December 2013 reached 3.48%, which was below the 4% level that the country was paying before the crisis when it had an AAA top credit rating. Ireland now enjoys investment-grade status from all three credit rating agencies, the latest upgrade coming from Moody’s on January 17th, 2014, raising it from Ba1 to Baa3. The first bond issue after the bailout exit was initiated during the same month and was welcomed by investors. The country raised EUR 3.75 billion at a yield of 3.54%, an issue marked by broad interest from investors in a sign of growing confidence in Ireland’s prospects. Holdings of Irish long-term government bonds experienced a massive surge since the beginning of 2013 when the country once again stepped into the private debt markets with occasional bond issues. Bond holdings increased from EUR 90.3 billion in January 2013 to EUR 115.4 billion by the end of February 2013. In November 2013, out of the total EUR 115.1 billion, EUR 62.2 billion was held by non-residents, representing 54% of long-term government bonds. Further increases in bond holdings are expected since the credit lines from the Troika will no longer be extended and Ireland is expected to be a frequent participant on the international bond markets. The low bond yields Ireland is enjoying also reflect the current low interest rate environment globally, which is an exogenous factor, beyond its control. Moving forward, with the rising global interest rate environment, Ireland will face fresh challenges as it seeks to return regularly to tap liquidity from the bond markets while preserving investor confidence it has managed to regain in recent years. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
7th February 2014 CEIC News@lert: Ireland Achieves Exit from Bailout Programme

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