Ireland wins top marks from IMF-EU

Ireland is clawing out of the economic crisis which drove the "Celtic tiger" economy into a debt bailout, EU-IMF auditors said on Thursday, implying that the country could be rewarded with some easier rescue terms. But the auditors, while giving Ireland high praise for constantly hitting targets and winning back some market confidence, warned that growth would remain modest into next year. They also said: "Fiscal targets for the first half of 2012 were met, further extending Ireland's record of consistently achieving programme targets." And "the (public) budget deficit is on track to be within the 8.6 percent of GDP target for 2012." Government revenues were running ahead of expectations. But the deficit "remains the largest in the euro area" and the government had to keep tight control of spending, notably of health care. Earlier official Irish revised data threw up a surprise in that the economy did not slip into recession in the first quarter as had been thought. Irish gross domestic product (GDP) shrank by 1.1 percent in the first quarter of 2012, the Central Statistics Office (CSO) said. However, the economy grew 0.7 percent in the fourth quarter of last year. That marked a major revision from the previous estimate of a 0.2-percent contraction which had put Ireland in recession -- defined as two quarters of contraction. And the CSO sharply upgraded its figures to show that the economy expanded 1.4 percent in 2011, double the prior estimate of 0.7 percent. Ireland is one of three countries in the eurozone to have needed a bailout but is well ahead of the other two, Portugal and Greece, in restructuring its economy. In November 2010, it received an 85-billion-euro ($108 billion) EU-IMF rescue package over three years, to which it contributed 17.5 billion euros, and is expected to stand on its own feet in financial markets during the course of next year. Auditors from the International Monetary Fund, European Union and European Central bank issued a report on their latest visit to check on how Ireland is meeting the bailout conditions. They suggested that in view of Ireland's good performance, some of the "technical" terms might be eased to ensure that the programme remained sustainable, and that new funding facilities might be available to boost growth. The auditors' report will determine if Ireland receives the next slice of 900 million euros from the IMF and 1.0 billion from new eurozone bailout funds, to which Britain does not contribute. But the auditors' statement said that "other EU states" would then provide an extra 700 million euros. "Ireland's policy implementation remains on track despite challenging macroenonomic conditions," they said in their initial statement. And on the basis of decisions taken at an EU summit at the end of June, the IMF, EU and ECB experts were discussing "possible technical solutions to further improve the sustainability" of the "well-performing adjustment programme" in Ireland. But the auditors warned that households were still trying to reduce their debts and that unemployment was high. This was holding back domestic demand. "Growth prospects for the remainder of 2012 and into 2013 remain modest," the auditors said. But they gave high markets for the way Ireland was clawing back confidence on financial markets. Ireland, known as the Celtic tiger for the speed with which it became a modern economy with strong growth, was brought to its knees when the rise of interest rates which triggered the global financial crisis exposed gross over-exposure of Irish banks and families to inflated property prices. The property market collapsed and the government underwrote the bankrupt banks, but this put Ireland itself on the verge of bankruptcy forcing it into the rescue. The auditors, referring to a successful return to the bond market on July 5 with the sale of three-month bills, said that this "underlines the increasing confidence in Ireland's strong capacity to implement adjustment policies and also reflects the recent euro area summit statement." Irish authorities were reforming the financial sector back to health, and the cleaning up of bank balance sheets "has progressed well." Unemployment remained unacceptably high, and efforts to generate sustainable growth and jobs were a "critical priority." Referring to a summit decision to boost the lending capacity of the European Investment Bank, the auditors said that "the authorities are considering plans to utilise the enhanced European Investment Bank resources in a range of sectors including education, transport and health care." At Capital Economics, chief European economist Jonathan Loynes, commenting on the growth figures, said that although "Ireland has made some progress in restoring competitiveness and regaining the confidence of bond markets, it is not yet out of the woods."