By Oren Laurent
President, Banc De Binary
Last week, the Republic of Ireland made history when it became the first bailed-out Eurozone country to officially cut ties with the “troika” and exit its financial rescue programme, in a move that the Finance Minister described as a “milestone” and a mark of reclaiming sovereignty.
On the last working day of the EUR 67.5 bln rescue programme, three years after it was forced to accept the bailout in the midst of the Eurozone debt crisis, Finance Minister Michael Noonan thanked Ireland’s rescuers for giving the country “time to make the adjustments needed” and praised the Irish people for heroically surviving the austerity measures.
As it sought to meet bailout targets, the country’s budgets and policies have been under strict scrutiny. The Government raised taxes by 5.3 bln euros and reduced public spending by 9.6 bln euros.
However, despite the positive step forwards, Noonan warned that there is still “a long way to go” because the budget deficit remains high and public debt levels of 124% of GDP are unsustainable. Ireland must pursue the same path of strict fiscal policies.
So what exactly has changed? What is the landmark achievement? In practice, Ireland’s economic strategy will remain similar from 2013 to 2014, but psychologically, there is a huge difference between being under the thumb of your creditors and financially independent. The elected Government alone will now make all financial decisions. In other words, Ireland has not fully recovered but it has made enough progress to be able to cut ties with the “troika” consisting of the European Commission, the European Central Bank and the International Monetary Fund. Although the country had the option of retaining an emergency credit line, it chose to forego its safety net, in a show of confidence that its Ministers must hope will boost investor confidence and public perception.
Today, the country’s successful austerity measures are seen not just in terms of its independence but also the very results which have brought it to this historic point. The construction sector is picking up again after hundreds of property firms went bankrupt when the financial crisis hit in 2008. House prices which had fallen 50% from their pre-crisis peak were up 10% in Dublin last year. Plus several multinational companies from Facebook to Intel are now investing in their Irish operations, granting a boost to the economy and job market. A total of 58,000 new jobs were created over the last year.
As Ireland embraces its sovereignty, there are positive signs that its recovery will continue. The Government will publish a mid-term economic strategy detailing how it will “maintain our focus on fiscal responsibility,” said Richard Bruton, the Jobs Minister. Noonan suggested that 2015 could be the last year of austerity, and several Ministers have expressed hope that by 2017 the country will have recovered to pre-crisis levels.
Undoubtedly the shadow of the financial crisis still looms overhead, but in the circumstances, as we look to the New Year, Ireland is probably in as strong a position as it could possibly be.
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