DUBLIN - Ireland's three-year bailout ordeal ends this weekend, a victory in its battle against bankruptcy. But while the government is ready to finance itself without aid, the Irish can't yet escape what has become Europe's longest-running austerity program.
The Irish faced ruin in 2010, when the
runaway cost of a bank-bailout program begun two years earlier destroyed the
country's ability to borrow at affordable rates. To the rescue came fellow
European nations and the International Monetary Fund with a three-year loan
package worth 67.5 billion euros ($93 billion).
The last of those funds arrived in
Ireland's state coffers this week. On Sunday, Prime Minister Enda Kenny will
address the nation on live TV to salute the financial rebound that has eluded
the eurozone's other bailout recipients Greece, Portugal and Cyprus.
Unlike them, Ireland has repaired its
fiscal reputation by exceeding a series of deficit-cutting targets and avoiding
both labor unrest and protracted recession. That surprisingly strong
performance has already allowed Ireland since mid-2012 to resume limited
auctions of long-term bonds at affordable rates, an essential prerequisite to
life without an EU-IMF safety net.
Ireland's treasury also has built up
more than 20 billion euros in reserves that, should disaster strike again,
would permit the state to pay its bills through 2014 without any immediate need
for renewed aid.
International confidence that Ireland
can resume financing its debt repayments on its own means that the yields -- the
effective interest rates -- on Irish 10-year bonds today have fallen to below
3.5 percent from 2011 highs exceeding 15 percent. That's lower than Spain,
which has received emergency support for its banks but avoided a full-fledged
bailout, and Italy, which continues to finance one of the eurozone's worst
The most obvious evidence of renewed
confidence at home is all the "sold" signs suddenly appearing in Dublin,
home to nearly a third of the country's 4.6 million residents and the epicenter
of a property bubble that burst with disastrous effect in 2008. Property prices
had slumped more than 50 percent in the five years since as credit crumbled,
banks drowned in toxic assets and hundreds of thousands became trapped in
negative equity, but the market is finally stirring again.
Ireland still faces a mountain to
climb to achieve its key goal of reducing its annual deficits back below 3
percent of gross domestic product, the limit supposed to be observed by all 17
nations using the euro currency.
Ireland recorded a European Union
record deficit of 32 percent in 2010, the year that the bill for sustaining the
country's six domestic banks grew so large that Ireland's own credit ratings
But since coming to power in early
2011, Kenny's government has reformed banking regulation, negotiated with the
European Union to spread out bank-debt repayments over several decades, and
imposed tens of billions in annual cuts and new taxes targeting every sector of
As part of its reform agenda, EU and
IMF chiefs ordered Ireland to impose new charges and limits on the state
old-age pension system, on welfare pay for the young, and to introduce a new
property tax in line with international practice. A much-debated water tax is
still in the pipeline for next year.
Ireland's major economic think tank,
the Economic and Social Research Institute, estimated in a report this week
that five straight years of cuts dating to the early days of the 2008 banking
crisis have pruned most workers' take-home pay by about 12 percent, while those
best off have lost more than 15 percent of their incomes.
Ireland's deficits have marched
steadily downward from 8.2 percent last year to an expected 7.3 percent this
year. Finance Minister Michael Noonan says Ireland hopes to post a 4.8 percent
deficit in 2014, then 2.9 percent in 2015. But he said Ireland would keep
pruning to get its later deficits down to the eurozone's future rule of below
0.5 percent of GDP.
"This isn't the end of the
road," Noonan said of the bailout exit. "This is a very significant
milestone on the road, and it gives us an opportunity to pause and reflect for
a very short period.
"But we must continue with the
same types of policies, because the deficit is too high," Noonan told a
Dublin press conference. "It has to be brought down below 3 percent, and
then it has to be brought into balance in subsequent years. The debt is too
high and we have to have strategies to make the debt even more sustainable than
it is now."
Ireland's national debt is projected
to reach 206 billion euros this year, representing 124 percent of annual GDP.
Ireland hopes to reduce that debt-to-GDP ratio, a key measure of a country's
ability to pay its bills, in 2014 by growing the size of its economy 2 percent.
Such predictions are particularly
difficult for Ireland because its growth prospects are dictated by demand from
its two chief trading partners, the United States and Britain. Nearly 1,000
export-focused multinational companies based in Ireland account for around a
fifth of the country's entire GDP. Those companies increasingly are hiring
again, and Ireland's unemployment rate has declined from a two-decade high of
15.1 percent to today's rate of 12.5 percent.
Noonan said Ireland must pursue around
2.5 billion euros ($3.4 billion) in cuts next year and more of the same in
2015. However, it might ease income-tax bands, particularly for single workers,
who are taxed at a rate of 41 percent on income over 32,800 ($45,000).