Europe debt crisis rolls on as Irish bailouts grow
And EU monetary commissioner Olli Rehn said he doubted that Ireland would need emergency aid from a rescue fund established earlier this year by the European Union and the International Monetary Fund. Greece has already tapped that fund to the tune of euro110 billion, but Ireland has already secured sufficient funds through mid-2011 and insists it won’t need external aid.
The Irish bailouts represent “a one-off cost measure that will be reflected in this year’s deficit figures,” Rehn said. “It is really large but manageable on condition that Ireland can … present a convincing multiannual fiscal strategy covering the years 2011-2014.”
Analysts remained skeptical, saying Ireland appeared to be playing for time in hopes that its key trading partners, the United States and Britain, would resume strong growth and pull the Irish economy up with them. Ireland hosts 1,000 multinational companies, mostly American.
“Ireland really has to pray for the best,” said Daniel Gros, director of the Center for European Policy Studies.
Gros said worsening global markets, or stubbornly high interest rates on Irish borrowing, might mean Thursday’s supposedly “final” bank-bailout figures might prove to be another false dawn. “At that point it might be difficult for Ireland to go it alone,” he said, referring to the prospect of an EU-IMF rescue.
Brian Lucey, economics professor at Trinity College Dublin, said the government had taken too long to reach this point. He said he expected ultimate losses at Anglo and Allied Irish to be several billion euros’ greater.
“Alas I don’t think we have final figures. We’ve had about four final figures for Anglo,” Lucey said, referring to previous government announcements.
The international investors who have driven Ireland’s cost of borrowing to euro-era highs this year reacted positively.
The yield paid out on 10-year Irish treasuries fell from its early 6.9 percent high to 6.57 percent by late Thursday. The premium demanded versus German bonds, the benchmark of euro-zone credit worthiness, declined to 4.3 points. At those rates, Ireland remains the second-riskiest national borrower in Europe behind Greece, and with Portugal a close third.
Lenihan said Ireland could not afford to trim its costs by requiring holders of Anglo’s senior bonds to eat some of the losses.
“We have to fund ourselves as a state with senior debt. And other banks have to fund themselves with senior debt,” Lenihan said. “You cannot send out a message in an economy like Ireland that senior debt can be dishonored. We’re far too dependent on international investment.”
However, he said the government would negotiate cut-rate settlements with Anglo’s most junior holders of “subordinated” bonds with a face value of euro2.4 billion. This could reduce Ireland’s estimated euro29.3 billion price tag for Anglo by a billion or two.
