Relations between the Irish people and the now departing Troika of EU, ECB and IMF representatives may be likened to that of the mythical People’s Front of Judea and their Roman occupiers. The emotional ambivalence long displayed towards our international partners is borne out of that deep-rooted sense of humiliation that greeted the perceived surrender of Ireland’s national sovereignty in November, 2010. Like those Judean agitators before us, there has been an abiding sense that such sovereignty loss was akin to “taking everything we had, not just from us, but from our fathers and from our father’s fathers”. Certainly, the initial media commentary that greeted the Troika’s arrival helped set the tone for such despondency, this newspaper musing whether “this is what the men of 1916 died for?”
The collective bereavement felt over Ireland’s sovereignty loss three years ago owes more to the heart than the head. As a fully-fledged participant in economic and monetary union in the euro area, Ireland had already ceded sovereignty over monetary and exchange-rate policies, while ostensibly committing herself to an admittedly loose-fitting fiscal straitjacket. Sovereignty constraints were additionally imposed by those infamous vigilantes of the bond market, and no more so than during the dark days of late-2010, when heightened concerns regarding the solvency of the Irish banking system resulted in seized-up funding markets for both the banks and sovereign.
Perhaps, more than anything, it was the pejorative nature of the “bailout” terminology itself which darkened the national mood towards our Troika paymasters. In truth, however, the Memorandum of Understanding (MoU) signed by all parties to Ireland’s three-year stabilisation programme was more in the nature of a “bargain” than a “bailout”, one in which mutually agreed targets for rehabilitating the Irish economy, banking system and public finances would be accompanied by a secure and ultimately very attractive funding package. Three years on, and with over 260 actions completed, those objectives have been broadly achieved.
It has been convenient to blame the Troika for the austerity measures heaped upon a hard-pressed Irish populace. However, enforced fiscal consolidation long pre-dated the Troika’s arrival, while the MoU effectively wrapped existing fiscal objectives from the Government’s National Recovery Plan while devoting its main energies to the “deep restructuring” of a highly distressed banking system.
Those banking stabilisation policies have proved an even more bitter pill to swallow for many, the Troika’s early decision to exempt senior bondholders from the recapitalisation exigencies of Irish banks flying in the face of a nationwide “burn the bondholders” rallying call. A recalcitrant ECB remains public enemy number one in this respect, but it is this very institution which subsequently provided unlimited (and ultra-cheap) funding to viable Irish banks during their entire restructuring programme, and which was to considerably soften the blow of Ireland’s dead-weight IBRC burden by acceding to a “novel” and close to zero-financing solution to end the Promissory Note controversy.
Today, Ireland formally exits its Troika support programme, and without the entrails of a precautionary credit line to boot. Talk of “sovereignty restored” and being “handed our purse back” is as vacuous as the “sovereignty lost” hand-wringing three years ago, given Ireland’s irrevocable commitment to strengthened fiscal surveillance in the single currency area. However, while today’s “clean break” without the sanctuary of a back-stop credit line was undoubtedly more politically than financially motivated, it is no less correct for it. Ireland’s programme exit is underscored, not just by substantial cash buffers, but more importantly by a dependable fiscal framework, broader-based economic recovery momentum and, not least, a potential inflection point in the mortgage arrears crisis. Ireland’s credit is now deemed altogether more worthy in the sovereign bond market, with yields plumbing historical depths of 1-4 per cent across the maturity spectrum, and the NTMA’s funding re-engagements with investors from early-2014 onwards likely to be greeted with open arms by a supply-starved market-place.
Ireland’s descent into a Troika stabilisation programme did not happen in a vacuum, but rather was the by-product of an existential crisis of confidence in the very solvency of EU sovereigns from late-2009 onwards. This crisis exposed the structural shortcomings of the EU project, but it also sowed the seeds for the accumulation of sufficient political capital among Eurogroup leaders to render this sub-optimal currency zone more optimal. In many ways, Ireland’s “bargain” with the Troika to implement a programme of policy stabilisation measures in return for secure and low-cost funding is a working template of how a more deeply integrated EU may conduct its fiscal and funding procedures in future.
So what has the Troika ever done for us? It is true that they didn’t give us the aqueduct, nor sanitation, nor the roads, but they did nurture this country through a particularly dark passage in its economic and financial history, while wrapping a protective funding blanket around it in the face of more turbulent waters elsewhere. They did not force the “surrender” of Ireland’s economic sovereignty, but rather “pooled” it with our EU partners, in the common interest of financial stability. In this, the Troika helped Ireland to help itself.
Donal O'Mahony is global strategist at Davy Capital Markets