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Ireland heads for end of bailout in final review

Ireland's Finance Minister Michael Noonan arrives at the Government Buildings before presenting his budget to parliament in Dublin October 1
Ireland's Finance Minister Michael Noonan arrives at the Government Buildings before presenting his budget to parliament in Dublin October 1

By Sam Cage

DUBLIN (Reuters) - Three years after going cap in hand to international lenders for a bail out, Ireland is set to step out on its own again.

The European Union and International Monetary Fund are due to sign off later on Thursday on the last part of a 85 billion euro ($114 billion) bailout, leaving Ireland to exit the process by the end of the year, the first crisis-hit euro zone country to do so.

Debts resulting from a rescue of its crashing bank sector in 2008 helped force Ireland into seeking aid from its EU partners and the European Union two years later as the euro zone's debt crisis deepened.

The official "troika" of lenders - the European Commission, European Central Bank and IMF - are conducting their final review of the bailout and given Ireland has met every major target, are widely expected to release the final funds.

They are expected to release statements after about 1200 GMT (7:00 EDT).

The main issue remaining is whether the government will take out an insurance policy of asking for a precautionary credit line when the bailout ends. It has indicated in recent weeks it may go it alone as it has funding into 2015.

"The assessment of the European Commission, the ECB and the IMF is largely positive, though they remain wary of unresolved problems in the banking sector," said Dermot O'Leary, economist at Goodbody stockbrokers.

The process may also be complicated by German efforts to form a new government given that Berlin is one of the main contributors to aid programs.

The country of 4.6 million has endured five years of austerity with little of the unrest that has rocked Greece and Spain and is now a much-needed success story for the EU, which wants to show that the discipline of tax hikes and spending cuts can work.

Irish debt yields have dropped from a 2011 peak of 15 percent to about 3.5 percent and the budget deficit has fallen from nearly a third of gross domestic product in 2010 to an estimated 7.3 percent this year.

That is still the highest deficit-to-GDP in the EU, partly because Ireland's economy is barely growing and it needs growth rates of 2-3 percent to make hefty national debt sustainable.

Unemployment, though falling, is above 13 percent and one in five home loans, worth 25 billion euros, are not being fully repaid. So all is not fixed.

The improvements have been enough to gain the government some market access, highlighted by a 10-year bond issue in March, but forgoing a precautionary line could leave it vulnerable to future market shocks and unable to access the ECB's government bond purchases scheme.

Concerns also persist over the health of Ireland's banks and the lenders are reviewing the quality of their assets - an exercise conducted in advance of full Europe-wide stress tests next year - before giving the final all clear to exit the bailout.

But finances and commitment have improved enough to lift Ireland to the brink of an exit.

"In Ireland, consumer confidence has improved and the (building supplies) and DIY markets have stabilized at very low levels of activity," said Gavin Slark, chief executive of supplies group Grafton , which reported higher revenues on Thursday.

(Editing by Jeremy Gaunt)

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