The governor of the Central Bank Patrick Honohan has said he is in favour of the Government’s decision to exit the bailout without a credit line.

Speaking on RTE’s Prime Time last night, he said there were risks attached – but that there are “ways of protecting against risks”.

“I actually favour the clean exit though a case can be made for the other approach,” he said. “We’ve come to the end of an important stage in the restabilisation of the Irish economy. Going ahead now there are a lot of other things that help us move forward apart from a precautionary credit line for another year.

“I volunteered my advice to Michael Noonan. I gave a balance between two options. In no way was it like the last time three years ago. I wasn’t saying this is definitely the way to go one way or the other.

“I felt the Government could choose between the options here and I waited to see what they would say. They opted for a clean exit and actually I would have done the same for Ireland.”

Asked about the practical benefits of exiting the bailout without a credit line, Mr Honohan said it was a “statement of intent” from the Government before entering the markets.

“From now on we are dealing with markets and convincing markets that we, Ireland, are credit-worthy and a credible counterpart. This is a statement of intent that the Government intends to continue on a path of discipline in its approach and action to support economic recovery.

“Economic growth and fiscal disciple are the two things that keep our finances on an even keel. By going in this way, I think it helps convince the markets.”

Mr Honohan said there are still many obstacles for Dublin to overcome in terms of ensuring a return to healthy economic growth for Ireland. “It’s a constant negative that growth is so much below potential in the Euro zone,” he said.

“There is no dispute about this. Six quarters of recession have been followed by two quarters of very low growth so that is a weak environment in which to sustain and build the Irish recovery.”

In terms of when people on the ground might begin to see an improvement in their day-to-day lives, he said the signs were pointing in “a positive direction”.

“The growth has started to recover. I don’t want to be too optimistic but I have to say the signs are all in a positive direction. It isn’t being felt by a large number of people. Some are feeling it but a large number are not and they will not get back to the living standards of five years ago – that’s for sure – but the direction is positive on a range of fronts.”

Mr Honohan also said there was work to be done in terms of repairing the banking system. “Nobody could be happy with the banking system at the moment. The environment is difficult for banks.

“There needs to be repair of balance sheets. Why are small and medium enterprises not getting loans? In large part because of the actuality or the fear of over indebtedness – banks don’t want to lend to a business that is over indebted.”

He said there was some improvement however in terms of banks offering solutions to distressed borrowers – but added repossessions of properties is “inevitable”.

“I don’t want to see repossessions but they are going to happen – it’s inevitable – particularly in the buy-to-lets where there is no sustainable solution.

“What we’re seeing now – and I wouldn’t have been able to say this six months ago – is banks making arrangements with households. It might be a temporary arrangement but we’re also seeing longer-term sustainable arrangements being made by banks so there is a reason for borrowers to come to the banks and talk.”

Mr Honohan said he could not rule out the possibility of more taxpayers’ money being used to recapitalise the banks at some point.

“The banks are going to need more capital by 2019 – that’s for sure – because there are these higher capital requirements all over the world. They come in progressively between now and 2019.

“The hope and the strategy is that by cleaning up their balance sheets, the banks will be in a position to attract private equity investors to attract that capital. At the moment, it’s not that attractive.

“I can’t guarantee that [the Government won’t have to provide the capital] because the big stress test which I would guess will be in the third quarter of next year will be under the supervision and monitoring of the single supervisory mechanism.

“They set the parameters, the stresses and the assumptions. We don’t know what those assumptions are. We can’t control them so we cannot be sure there won’t be any need.”