Dáil Éireann Debate, Wednesday - 20 November 2013
49. Deputy Terence Flanagan asked the Minister for Finance the reason a precautionary credit line was not proceeded with; the terms that were offered in that credit line, including interest rate and term of loan; and if he will make a statement on the matter. [49617/13]
View answer51. Deputy Billy Timmins asked the Minister for Finance the conditions that would have prevailed if we had availed of the precautionary credit line; the reasons he chose not to take this option; and if he will make a statement on the matter. [49638/13]
View answerI propose to take Questions Nos. 49 and 51 together.
As the Deputy will be aware, the Government decided on 14 November that Ireland is now in the best position to exit the EU-IMF programme of financial assistance on December 15 without the need to pre-arrange a new precautionary credit line from our EU and IMF partners.
The Government decided that exiting without a pre-arranged precautionary facility or backstop is the right decision for Ireland. Market confidence in Ireland is high, the public finances are under control, we are reducing our deficit and debt levels and economic conditions and sentiment are improving.
In relation to the conditionality, the ESM Treaty provides that all ESM funding, including the precautionary facilities, require conditionality. The conditionality relating to any credit line would be a matter for discussion in the event that an application would be made. Article 13 (3) of the ESM Treaty states as follows;
"..the Board of Governors shall entrust the European Commission - in liaison with the ECB and, wherever possible, together with the IMF - with the task of negotiating, with the ESM Member concerned, a memorandum of understanding (an "MoU") detailing the conditionality attached to the financial assistance facility. The content of the MoU shall reflect the severity of the weaknesses to be addressed and the financial assistance instrument chosen. In parallel, the Managing Director of the ESM shall prepare a proposal for a financial assistance facility agreement, including the financial terms and conditions and the choice of instruments, to be adopted by the Board of Governors...."
However, it was not possible to get clarity on the type conditionality that would apply to any precautionary facility that might be sought in advance of an application. The interest rates for any particular facility, if sought, are determined by the ESM’s Pricing Guidelines and the IMF’s Pricing Policy.
The Government concluded that exiting with a pre-arranged precautionary credit line was not appropriate to Ireland’s circumstances as the option of exiting without a precautionary credit line was preferred in view of the favourable market conditions at present. There is no certainty that conditions would be as favourable in a year’s time when any precautionary facility would end, or at a later date, if the option for further six month renewals were exercised.
Finally, while the decision was finely balanced, it is the case that since taking the decision we have enjoyed a significant amount of support and the markets have responded positively.
