* Government made statement of intent-Central Bank chief
* Moody’s says credit line more psychological than financial
* Ireland to present new blueprint for economy next month
DUBLIN, Nov 15 (Reuters) - Ireland has put itself at the mercy of the markets by shunning a backup credit line. Now it has to prove its discipline won’t take flight along with its bailout lenders.
Dublin opted on Thursday to make a clean break from its 85 billion euro ($114 billion) aid programme and Finance Minister Michael Noonan warned he did not want to see brass bands marching down the streets when the so-called “troika” of lenders leave, wary of the challenges ahead.
This means ensuring a dogged austerity drive and rigorous adherence to fiscal targets continues so as to allay any lingering fears among its more conservative European partners who had wanted Ireland to take a precautionary credit line.
“This is a statement of intent that the government intends to continues on the path of discipline and action to support economic recovery,” Central Bank Governor Patrick Honohan told national broadcaster RTE in an interview late on Thursday.
“From now on you’re dealing with markets and convincing markets that we, Ireland, are creditworthy and a credible counterpart.”
Despite taking almost 30 billion euros - or close to a fifth of annual output - out of the economy since 2008, Ireland has one more tough budget to go next year to bring the highest budget deficit in the European Union to below 3 percent of output from an estimated 7.3 percent this year.
Concerns persist over Irish banks ahead of euro zone-wide stress tests next year and economic growth of 2-3 percent - far above near-stagnant forecasts for this year - is needed fast to put a debt of 124 percent of GDP on a sustainable footing.
A better euro zone outlook is key for the export-focussed economy and to provide the benign environment for the country’s debt agency to keep successfully raising debt, albeit with a modest 6 to 10 billion euros needed to pre-fund for 2015.
“NORDIC, NOT MEDITERRANEAN”
But top of the list right now for the government is proving to investors and Ireland’s patient population of 4.6 million that it is up for the task. Its clean break won the approval of Moody’s, the only credit rating agency to class Irish debt as “junk”, whom it is also extremely keen to get fully on side.
“Taking a precautionary credit line was more psychological than financial. Ireland’s decision seems to have been very well accepted by the market.” Moody’s Kristin Lindow told Reuters.
“It is relatively resilient to whatever comes its way in 2014,” Lindow, Moody’s analyst for Ireland, added referring to the full year’s worth of cash Dublin has on hand.
The yield on Irish 10-year debt, which was trading at 15 percent when Moody’s cut Ireland to junk in July 2010, has fallen a touch to 3.54 percent since Thursday’s announcement.
The first step in re-affirming Ireland’s mettle to those trusting investors is a new medium term economic strategy, the main outlines of a which will be presented next month.
According to a presentation posted on the finance ministry website, it will aim to convince the public that lessons have been learned and that there are strong benefits to maintaining the discipline of the bailout with the outlook still uncertain.
Noonan, the canny, 70-year-old minister who watched Ireland drag itself out of recession and high debts in the 1980s only to throw it all away in the cheap credit-fuelled Celtic Tiger days, says the plan will provide a blueprint for the economy.
“My ambition is to move Ireland from being the strongest of the weak into the other division and become the weakest of the strong and then work our way up because we actually have more in common with the North European economies,” Noonan said in a speech this week.
“In our social life and our affability and our sense of good craic, we might be like the Mediterraneans,” he said, using the Irish slang for fun. “But when we come to do business, we’re Nordic in our makeup.” ($1 = 0.7430 euros)
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