Spain won't ask for more aid, Ireland may not need to - EU official

Reuters

By Jan Strupczewski

BRUSSELS (Reuters) - Neither Spain nor Ireland are likely to seek more financial aid when current programmes of EU and IMF support end this year because Spain does not want to and Ireland is already funded for 2014, a senior EU official said on Tuesday.

Ireland's three-year, 67.5 billion euro (57 billion pounds) bailout from the euro zone and the International Monetary Fund, and the associated conditions on budgets and policy, is due to end on December 7.

Dublin said in September that it would seek a 10 billion euro precautionary credit line from the euro zone to insulate it against any market shocks when the bailout expires, but officials have softened their language since and the EU source said the country had not asked Brussels for such a programme.

"Ireland is not in need of financing in the near or medium-term. The central scenario is that Ireland could very successfully tap markets across the yield curve," said the official, who is closely involved in euro zone issues.

"The question is: should Ireland consider a precautionary programme or not. I think that they are in such a good condition that it is not necessary," the official said on condition of anonymity because of the sensitive nature of the matter.

For Spain, the euro zone offered up to 100 billion euros to help recapitalise banks last year, but Madrid borrowed only 41 billion in exchange for reforms and close international monitoring. It will not be able to draw down any more after the end of this year.

"Spain sees no need for a follow-up programme, therefore it will not be happening," the official said. "If Spain does not ask, no one is going to push," he said.

European Union officials hope that Ireland may mark the beginning of the end of the euro zone's debt problems if it does draw a line under its funding worries next year. Concerns about how Spain's economy will function in an era of tighter credit and more constrained housing markets continue to weigh on the prospects for its banks and government.

The IMF on Tuesday gave Ireland the green light to ease up on budget austerity in 2014 and predicted a solid 1.8 percent economic expansion as well as a return to minimal growth in both Italy and Spain.

NO CREDIT LINE AFTER ALL?

Some policy-makers in Brussels have said that Spain and Ireland would be wise to seek a new credit line, just in case. Even if never used, it would enable the European Central Bank to include Ireland or Spain in its programme of government bond purchases, sending a powerful signal of confidence to markets.

But such credit lines would also come with conditions and further close monitoring - a loss of sovereignty in economic policy-making that governments accept only as a last resort.

The official said that there was rising interest from private investors in Spanish banks, a sign the economy may be bottoming out.

"We also see the encouraging development of asset prices. My feeling is one can be fairly upbeat about Spanish banks and the economy," he said.

Since the statement on September 6 referring to the new credit line, Ireland's borrowing costs have fallen to 3.66 percent for the benchmark 10-year paper from 4.16 percent, below Italy.

Finance Minister Michael Noonan told parliament last week that no decision had been taken on a backstop facility for after the bailout. At the start of October the state already had 25 billion euros in cash and was therefore fully funded for 2014. It needs to raise less than 5 billion euros in 2015.

"A precautionary credit line for Ireland now makes absolutely no sense. They might need it for 2018, for instance, but not now," a second euro zone official said, referring to a year when the country's borrowing needs are scheduled to start to rise sharply.

Under euro zone rules, a temporary credit line can be granted for one year and extended twice by six months.

(Additional reporting by Martin Santa and Robin Emmott in Brussels, Padraic Halpin in Dublin; editing by Patrick Graham)

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