If there was an award for “comeback nation of the year,” Ireland would be a leading candidate to take the prize for 2013.
The Dublin government announced last week that it will soon end its reliance on the bailout loans that got Ireland through the worst of the sovereign debt crisis. Though some observers thought Ireland would seek a precautionary credit line – think of it as financial independence with training wheels – Irish officials said that after consulting some of their eurozone partners (particularly Germany), they feel confident that their nation can keep its balance without outside support.
As Ireland regains its economic sovereignty, it is worth comparing the country with other nations that have needed substantial help from the international community. Argentina has repeatedly shorted its creditors, most recently in the fallout from the country’s massive default in 2001. Some of Argentina’s creditors, who refused to take the roughly 30 cents on the dollar it offered them, continue to fight in court for what they are owed. Iceland, meanwhile, first tried to stiff foreign depositors in its previously overstuffed banks, and then trapped non-Icelandic investments in the country using exchange controls. Meanwhile, the ongoing troubles in Ireland’s similarly beleaguered eurozone partners – Portugal, Cyprus, Spain and especially Greece – are well-known.
The Irish endured several years of harsh austerity as they rebuilt their national finances. Irish citizens, by and large, did not look to their government as the employer of first and last resort. Nor did Ireland try to tell the world that trusting the Irish banking system was foolish, and that any losses from doing so were investors’ own fault.
In fact, Ireland’s problems arose mainly because the Dublin government made a well-intentioned but hasty pledge to stand fully behind Ireland’s banks just as the housing bubble burst. Ireland said when it made the pledge that guaranteeing its banks’ liabilities was affordable, but the policy ended up bringing the country to the edge of bankruptcy. As it was, Ireland had to accept international help in 2010, taking loans from the European Union and the International Monetary Fund.
But like responsible borrowers everywhere, Ireland has positioned itself to get a second chance. The country is about to emerge from its bailout and re-enter the global credit markets as a borrower in good standing, with its financial house in order and its economy about as strong as can be expected in the slow-growth eurozone. Ireland originally fell because of its choice to back its banks, not because of longstanding government overspending and fudging the books (as was the case in Greece). This difference is enough to make many investors more optimistic about Ireland in the long term.
“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 said, according to Reuters. Ireland is slated to announce a new medium-term economic strategy next month, another key step in rebuilding investor trust. For now, investors mostly seem willing to give Ireland the benefit of the doubt.
Ireland may lead the way as Europe slowly tries to move forward after several years of simply trying not to slide back. Spain followed Ireland in announcing its exit from its own bailout program, also without an emergency credit line. It remains to be seen if Ireland’s path will eventually lead the way for Portugal and Greece as well. Even Greece, the poster child for national financial mismanagement, reported last week that it is on a path to a balanced budget.
Welcome back to the fold of financially responsible countries, Ireland. One day, maybe the United States will join you there.
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