From a purely purse-string perspective, Noonan's plan makes a lot of sense. The country’s last visit to the bond market — an auction of €500m of March 2024s — cost Ireland 2.315% in yield. That’s well below the nearly 5% interest rate Ireland is paying on the €18bn of IMF loans Noonan plans on refinancing. It’s also a longer tenor than any of the €22bn total of outstanding borrowing from the IMF.
But if there is a crisis in the eurozone, it’s no longer about debt. ECB president Mario Draghi made sure of that in July 2012 with his “whatever it takes” speech. Whether or not you believed him when he added: “Believe me, it will be enough,” he shifted the focus to the eurozone’s politicians.
If Draghi and the ECB’s work is to be successful, politicians need to convince their electorates that a more integrated union is desirable. That in France the anti-eurozone, far-right party Front National made big gains in European elections in May is a sign that many voters — in France at least — are growing weary with the European project.
Noonan, when he announced his intentions at a press conference on Monday, claimed that the bulk of his EU counterparts were in favour of the move, as was Klaus Regling, head of the European Stability Mechanism.
But tellingly, he added: “There's an inconvenience for some if they have to go back to their parliaments and some might have to.”
Sure, Ireland could be lucky and get the full support of its EU partners to change the terms of its bailout package. But what of the future?
Portugal is behind Ireland in the recovery stakes, but it posted a record primary central government surplus of €723m for the first five months of 2014, according to figures released last month.
With its yields also falling and outlook improving, what’s to stop it asking for similar treatment on the IMF part of its own bailout package next year or the year after?
Europe’s weary political class will baulk at the idea of having to take an unpopular idea to their parliaments again. And by that time the populaces of Europe’s creditor nations may be even more opposed to what they perceive as paying the cost for other nationalities’ spending sprees. If such a request coincides with national elections and rising Euroscepticism then Portugal may well be told where to stick it.
And that’s all before we get on to Greece and Cyprus, which would surely follow.
By allowing Ireland to change the terms of its agreements, it would be extremely tricky to deny similar privileges to the other bailed out countries.
Ireland cannot be blamed for trying to cut its debt costs. But its partners should think long and hard about the full future impact of letting it do so.