Three years ago Ireland found itself at the centre of the euro zone financial maelstrom in Brussels, as the country inched its way towards a bailout. Today, the context is very different as it once again finds itself at the centre of events.
Ireland's exit from the bailout is not only a momentous moment for Ireland, it is also of huge significance for Europe. Ireland's achievement in keeping to the terms of the bailout programme, and seeing its bond yields fall to 3.5 per cent, will be seized upon by euro zone leaders as proof that the much maligned policy of austerity is working.
It’s a much needed good-news story at a time when concern is growing about the state of some of the bloc’s biggest economies and the threat of falling inflation and high unemployment is growing.
The first inkling that Ireland could exit unaided came last month. Michael Noonan's suggestion at the Fine Gael annual conference that Ireland could exit the programme unaided can be seen as a testing of the waters. Having opened the Pandora's box, the Government waited to see the market reaction.
The result was that bond yields fell, a sign that the market was not necessarily “pricing-in” the comfort of a precautionary credit line when Ireland exits.
Since then, debate about whether it would exit with or without a precautionary credit line in place has intensified over the last few months with Mr Noonan taking soundings from lenders in Europe and Washington.
The persistent narrative that the decision was one for Ireland alone was simply not true. Any decision relating to the ESM fund - the source of any precautionary credit line for a euro zone country - requires unanimity, effectively giving Germany a veto. The fact that no German government is in place was a strong factor in the decision to go it alone.
There have also been divisions within the Troika on the issue, with Brussels strongly favouring a clean break, and the ECB reiterating last week that a precautionary credit line would be “useful.”
The IMF, which unlike the euro zone has experience in funding bailouts, has been keen to dispel suggestions that it was pushing for a precautionary credit line. It points out that many of the countries it funds return to full private market funding unaided.
In the short term, the key focus will be the reaction on markets; in the longer term the results of the Irish bank stress tests, which should be finalised at the end of this month, will be of crucial concern.
This week's developments with Newbridge Credit Union were a worrying signal of the problems that still exist in the financial system. Ireland's notorious reluctance to write-down troubled mortgages is another.
Despite the exit from the bailout, Ireland will be subject to significant post-programme surveillance, as well as the euro zone’s tough new “two-pack” rules. It will also be paying back its loans for many years to come. Nonetheless, as euro zone finance ministers return to Brussels today to discuss continuing problems with the Greek bailout programme, the Irish bailout story is likely to steal the show.
