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Published on November 11th, 2012 | by Katharina Obermeier
Image © [caption id="" align="alignnone" width="566"] © James.Stringer, Bank of Ireland[/caption]   While most of the eurozone coverage in international media has focused on problem cases Spain and Greece recently, Ireland also made the news in the last few weeks. The occasion was the completion of the eighth review mission to the country by the troika of the European Commission, European Central Bank and International Monetary Fund. These reviews take place every quarter in order to assess Ireland’s progress under the terms of its Economic Adjustment Programme. The results of this quarter’s review were very positive: Ireland is expected to meet its fiscal and reform targets for the year, and has even started to access market financing again. This essentially means that investors are beginning to view the Irish government as a reliable market player again, which is good news for a country which was forced to ask the EU for help to pay its bills just two years earlier. While a successful quarterly review of a financial assistance programme may not seem all that remarkable, this moment may in fact represent an important milestone in the eurozone crisis. Following the completion of the review, Ireland’s leaders have indicated that they expect the country to exit the Economic Adjustment Programme by the end of 2013. That would make Ireland the first real “success story” among the eurozone member states under EU/IMF financial assistance programmes in the current crisis, and would provide a much-needed boost of morale to advocates of the single currency and the EU’s role in the eurozone crisis so far. Despite these hopeful signs, there is still considerable anxiety surrounding the crisis in Ireland, much of it hinges on the question of whether Ireland will receive any help in recapitalising its banks. An EU leaders’ summit earlier this year produced a general agreement among member state governments to allow the use of EU funds to recapitalise – or rescue – banks in troubled countries directly, without going through national governments. While there were many conditions and qualifiers attached to this agreement, which would apply only to countries which were successfully implementing reforms, it was still celebrated by Irish and Spanish leaders who saw it as a means of relieving strained government budgets from coping with the burden of a failing banking sector. However, that celebration was short-lived as German politicians hastened to clarify that they would only agree to this use of funds if applied to future bank rescues, not ones which were already taking place. That would effectively rule out assistance to Irish and Spanish banks from the European Stability Mechanism. Interestingly, despite this statement, the Irish government might still be in luck. In response to questions about Irish bank recapitalisation, the German government has maintained that Ireland is a “special case,” which could potentially mean that it would agree to additional assistance for the Irish banking sector, though not for other eurozone countries in crisis. It appears that the reasoning behind the use of the term “special case” is related to the disproportionally devastating impact of the collapse of the banking sector on Ireland’s government debt: in 2010, the deficit increased dramatically from 14% to 31% of GDP due to the amount of government funds spent on rescuing the sector, and it is estimated that the total cost of bank recapitalisation has amounted to 40% of the country’s annual economic output. These figures certainly present a good argument for using European Stability Mechanism funds to relieve this burden on Ireland’s financial situation. On the other hand, it will be interesting to see if EU leaders will actually make this exception for Ireland. One could make the argument that the failing Spanish banking sector has been similarly toxic for Spain’s debt, and that this country therefore also constitutes a “special case” requiring extra bank recapitalisation funds. It is doubtful whether German politicians in particular would be willing to open this kind of can of worms by singling out Ireland.

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Ireland: the “Special Case”

© James.Stringer, Bank of Ireland

 

While most of the eurozone coverage in international media has focused on problem cases Spain and Greece recently, Ireland also made the news in the last few weeks. The occasion was the completion of the eighth review mission to the country by the troika of the European Commission, European Central Bank and International Monetary Fund. These reviews take place every quarter in order to assess Ireland’s progress under the terms of its Economic Adjustment Programme. The results of this quarter’s review were very positive: Ireland is expected to meet its fiscal and reform targets for the year, and has even started to access market financing again. This essentially means that investors are beginning to view the Irish government as a reliable market player again, which is good news for a country which was forced to ask the EU for help to pay its bills just two years earlier.

While a successful quarterly review of a financial assistance programme may not seem all that remarkable, this moment may in fact represent an important milestone in the eurozone crisis. Following the completion of the review, Ireland’s leaders have indicated that they expect the country to exit the Economic Adjustment Programme by the end of 2013. That would make Ireland the first real “success story” among the eurozone member states under EU/IMF financial assistance programmes in the current crisis, and would provide a much-needed boost of morale to advocates of the single currency and the EU’s role in the eurozone crisis so far.

Despite these hopeful signs, there is still considerable anxiety surrounding the crisis in Ireland, much of it hinges on the question of whether Ireland will receive any help in recapitalising its banks. An EU leaders’ summit earlier this year produced a general agreement among member state governments to allow the use of EU funds to recapitalise – or rescue – banks in troubled countries directly, without going through national governments. While there were many conditions and qualifiers attached to this agreement, which would apply only to countries which were successfully implementing reforms, it was still celebrated by Irish and Spanish leaders who saw it as a means of relieving strained government budgets from coping with the burden of a failing banking sector. However, that celebration was short-lived as German politicians hastened to clarify that they would only agree to this use of funds if applied to future bank rescues, not ones which were already taking place. That would effectively rule out assistance to Irish and Spanish banks from the European Stability Mechanism.

Interestingly, despite this statement, the Irish government might still be in luck. In response to questions about Irish bank recapitalisation, the German government has maintained that Ireland is a “special case,” which could potentially mean that it would agree to additional assistance for the Irish banking sector, though not for other eurozone countries in crisis. It appears that the reasoning behind the use of the term “special case” is related to the disproportionally devastating impact of the collapse of the banking sector on Ireland’s government debt: in 2010, the deficit increased dramatically from 14% to 31% of GDP due to the amount of government funds spent on rescuing the sector, and it is estimated that the total cost of bank recapitalisation has amounted to 40% of the country’s annual economic output. These figures certainly present a good argument for using European Stability Mechanism funds to relieve this burden on Ireland’s financial situation. On the other hand, it will be interesting to see if EU leaders will actually make this exception for Ireland. One could make the argument that the failing Spanish banking sector has been similarly toxic for Spain’s debt, and that this country therefore also constitutes a “special case” requiring extra bank recapitalisation funds. It is doubtful whether German politicians in particular would be willing to open this kind of can of worms by singling out Ireland.

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About the Author

Katharina Obermeier

Katharina considers herself a German-Canadian hybrid. She grew up in Germany and completed her BA in International Relations at the University of British Columbia in Vancouver, Canada. Politics, especially in relation to concepts of nationality, have always fascinated her, and she is particularly interested in international political economy. During her studies, she was an avid participant at Model United Nations conferences, and helped welcome international exchange students to her university. She is currently completing an internship at a Brussels-based trade association and hopes to work in European affairs in the future. In her political writing, Katharina marries social democratic principles with a keen interest in the European Union and its implications for European politics and identity. She writes to counteract simplistic ideas about politics and economics, continuously attempting to expose the nuances and complexities involved in these subjects.



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