The Irish Times view on repaying the bailout: back to the future

The closing chapter in Ireland’s EU/IMF bailout could come sooner than expected, if the Government can arrange the early repayment of €8bn in loans drawn down from the European Financial Stabilisation Mechanism (EFSM) in 2010.

The estimated annual saving in interest payments from such a move is €90m, which, although welcome, would have a marginal impact on the State’s finances. Minister for Finance Simon Harris said the benefit would be as much reputational as economic as “it does show how far this country has come”.

The country has indeed come a long way since a humiliating loss of economic sovereignty during the global financial crisis. But the multi-billion-euro question is whether the Government learned the lessons of the recent past.

There are important differences between now and 2008. Back then house prices had become dangerously inflated because of a decade-long credit bubble. The Irish banking system is on a much more solid footing now and while house prices are elevated, it is not because of a credit bubble. But there are some uncomfortable similarities. In the decade leading up to the crash, the government had ramped up spending, based on surging property taxes. In 2007, Ireland was posting one of the highest budget surpluses in the EU and had one of the lowest debt-to-GDP ratios. When the property market crashed, the State’s revenue dried up.

Ireland is once again posting budget surpluses that are the envy of most EU members. But once again, the State’s coffers are heavily concentrated on a single revenue source: corporate taxes. And the Government continues to ramp up spending.

There is a budget surplus of €9bn forecast for next year, but if transient corporate taxes are stripped out, this becomes a €13.4bn deficit.

The crash forced the country into a bailout. Whether Ireland would require another one if foreign direct investment fell depends on broader factors. But while in some respects Ireland has come a long way, in other respects it has not.