Europe Economy

Ireland exits bailout: Mission not quite accomplished

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Ireland becomes the first of the euro zone's financial crisis casualties to stage a recovery this Sunday when it exits its 85 billion euro ($114 billion) aid program. But you may have to wait a while for the green, white and gold tickertape parade.

The country has relied on 85 billion euros ($114 billion) in international bailout loans and assistance from its fellow euro countries, the International Monetary Fund (IMF) and the European Central Bank (ECB) for the past three years.

In that time, the Irish government has implemented stiff austerity measures and overhauled the banking system that brought the country's economy to its knees. The last of Ireland's bailout loans was paid out earlier this year and now the country has to go back to paying its own way.

(Read more: We don't need more money: Irish FinMin)

However, there are several crucial reasons why Ireland cannot make as clean a break from its bailed-out past as it would like.

First, Ireland is not exactly out from under the wing of its international lenders, the "troika" made up of the IMF, ECB and European Commission, yet. It will have "enhanced supervision" until 75 percent of its debt has been repaid, a process which is likely to take years, and the IMF is keeping an office in Dublin.

Second, its banking system is far from out of the woods. A recently completed balance sheet assessment of the bailed-out banks: Bank of Ireland; Allied Irish Banks and Permanent TSB, by the Central Bank of Ireland, concluded that all three have not made adequate provisions for bad loans. Nearly a third of buy-to-let mortgages are in arrears – although the rate at which arrears appear is slowing.

(Read more: Is Ireland risking long-term pain for short-term gain?)

Economist David McWilliams has pointed out that the IMF has reserved the right to make a "capital levy" – so a similar move to the tax slapped on bank deposits in Cyprus could be made if debt levels are not brought down quickly enough, penalizing those who still hold large deposits in Ireland's remaining banks.

Third, the Irish government has not yet announced its plans for the post-bailout economy.

Ireland makes a clean break from bailout

As Mark Wall, economist at Deutsche Bank, pointed out: "We are still waiting for the medium-plan plan from the government. There's still an air of positivity and optimism, but there's a lot to do in 2014 to make this a genuinely sustainable process."

"Growth and jobs have to be at the forefront of any plan. Ireland will be doing its best to foster and protect the strength of the export sector, its golden goose," he added.

And fourth, and possibly most important, the country is still completely dependent on the actions of the ECB. So, if the central bank suggests that it may bring in measures to stop weaker banks from buying up of peripheral euro zone bonds by making those lenders hold capital against the bonds – as ECB board member Peter Praet suggested in a recent interview with the Financial Times – Ireland's bond yields may start ticking up again.

(Read more: ECB gets tough on sovereign bonds)

"The ECB doesn't want to do something to seriously impair this nation's recovery," Wall said.

Ireland is leaving the bailout without any extra backing from the troika in terms of credit support, and with a 21.5 billion euros ($29.6 billion) liquidity buffer, which sets a precedent for the other bailed-out euro zone nations: Greece; Portugal; Spain and Cyprus.

The Irish have endured five years of austerity with relative political calm. The regime which guaranteed its banks was voted out, but people have not taken to the streets in protest in the volume seen in Greece and Spain. This may be because there are simply less of them around – an estimated 400,000 of a 4.5 million population have left during the crisis.

(Read more: Ireland's latest austerity cut)

"Ireland has seen these cycles of emigration come and go, where the youth leave but come back again when the economic grass starts to grow again," Wall said.

The real indicator of whether Ireland is out of the woods will continue to be its bond yields, the measure of how much it has to pay for its debt – and how much investors trust the ECB to continue supporting Ireland.

"There's lots to work through, but international investors seem to understand that things seem to be turning a corner," Wall said.

- By CNBC's Catherine Boyle. Twitter: @cboylecnbc.