THE THREE-PRONGED strategy of “coming clean” on the true cost of the bank bailout, forcing losses on to subordinated debt holders and promising a four-year budget consolidation plan in November could save Ireland from an EU or IMF bailout, says an expert on European economies.
Ireland is not Greece, says Jacob Kirkegaard, a Danish economist who covers European affairs at the Peterson Institute for International Economics in Washington DC. But in the hypothetical situation where an international bailout becomes necessary, it would be an extraordinarily unpleasant experience.
Mr Kirkegaard called successive Irish governments management of the economy from boom to bust, particularly the corrupt interaction between politicians, property developers and banks a monumental policy failure.
In addition to coming clean on the cost of the bailout, Mr Kirkegaard said it was a positive signal that subordinated bondholders will be scalped.
Governments are usually reluctant to force creditors to take losses, he said, but in this case it was necessary. The website of Germany's Handelsblattbusiness daily did its best yesterday to crank up panic. Shortly after 9am, it reported that the "Ireland crisis has escalated, but panic holds off".
“The Greek virus is spreading around Europe, but the EU states, commission and the ECB are taking a united stand against the crisis and have apparently convinced the markets,” the website noted.
Six hours later, however, it informed readers: “Ireland stands at the brink of ruin.”
“The cost of rescuing deadbeat banks will reach a third of economic output this year, putting Brian Cowen under massive political pressure at home,” the website noted. “He assures the problem is solvable and EU finance ministers are backing him up – for now.”
According to the Frankfurter Allgemeine, in Ireland yesterday "only the Opposition is exulting". Die Weltquoted Ian McQuaid of Bloxham Stockbrokers as saying: "It is impossible to throw an unlimited amount of money after Anglo Irish Bank, introduce fiscal savings measures at the same time and somehow hope that economic growth will help the budget out of its difficulties."
Austria's Der Standardnewspaper remarked in headline "Irish Debt Explodes". Austrian state television suggested that, on the issue of Ireland's finances, the EU was involved in "verbal damage limitation" yesterday.
Goldman Sachs London-based senior global economist Kevin Daly offered a “cautiously constructive” welcome to Mr Lenihan’s announcement saying the Government and the Central Bank had “gone some way” to removing immediate doubt held by international markets surrounding the costs of the bank rescues.
The news that Ireland will not hold any more bond auctions this year and accelerate budget cuts caused surprise in some quarters:
“The financial markets like the sound of both of those initiatives. Instead of regarding the bond auctions moratorium as a sign of weakness, which they could do, theyve decided to view it positively for now,” Mr Daly said.
