PARIS Ireland may go it alone when it comes off emergency aid later this year and not sign up to a precautionary credit line that would smooth its bailout exit but bring political difficulties, a euro zone source said on Thursday.
Rescued by Europe and the IMF in late 2010, Ireland has consistently hit the targets set under its bailout and closed in on weaning itself off emergency assistance last month by raising 5 billion euros ($6.5 billion) in a landmark 10-year bond sale.
The IMF, one of Dublin's "troika" of lenders, said last week it had begun talks on Ireland's bailout exit, including the possibility of extending a precautionary credit line, a safety net the European Commission has said it could also provide
However finance minister Michael Noonan said on Thursday Ireland wasn't actively pursuing a credit line and the source said that if Dublin can prove it has enough cash and that its troubled banks are in reasonable shape, it may not seek one.
"Ireland will need to make an assessment after the summer as to what it prudently requires before it goes out in the dark alone," the source, who has knowledge of talks on how Ireland should exit its bailout, said in reference to the credit line.
"There are political consequences, a new MOU (memorandum of understanding) would be required. For a government which said 'we'll get you out of it,' negotiating a new MOU is not a lucrative process. They don't need to decide before the autumn."
"Where Ireland would probably prefer to end up is with its own economic program. For that it would need to demonstrate that its banks are OK and that Ireland has built enough cash and they've got enough cash aside."
While Ireland's current MOU ends this year, it has already laid out the size of budget cuts required for both next year and the year after to reduce its budget deficit to an EU-imposed target of 3 percent of gross domestic product by 2015, from just under 8 percent last year.
Dublin is also close to reaching its goal of being fully funded for the 12-15 months after its bailout although doubts still hang over its loss-making banks, which are struggling to get to grips with high levels of mortgage arrears.
Opting not to take a precautionary credit line would also rule Ireland out of qualifying for the European Central Bank's new bond-buying scheme, another potential post-bailout backstop that Dublin said it was examining.
Moody's, the only ratings agency that ranks Ireland's debt as "junk," said last month that gaining eligibility for the Outright Monetary Transactions (OMT) scheme via a precautionary line would be "viewed positively.
However Noonan said Ireland was "moving quite well" toward fully regaining market access and the yield on Irish 10-year debt would likely fall further below 4 percent if euro zone finance ministers agree, as expected, to give Dublin seven more years to repay its bailout loans.
"The way things are going we don't need it at present," Noonan told reporters, referring to a post-bailout credit line.
"We are not actively pursuing precautionary lines, but we know that facility is available in some circumstances from the IMF. I'll be in Washington next week at the IMF meeting and I would hope to take that up."
(Writing by Padraic Halpin in Dublin; Additional reporting by Conor Humphries; Editing by Todd Eastham)