Goodbody says we are likely to miss to debt targets, sparking bailout
Published 11/01/2012 | 05:00
THE country will need another bailout because the Government won't meet the targets set by the bailout partners unless something is done to reduce the nation's debt levels, Goodbody Stockbrokers has predicted in a report.
Economist Dermot O'Leary said in yesterday's report that the Government won't be able to bring borrowing below 3pc of gross domestic product by 2015 and won't be able to get a handle on the national debt unless the bailout partners restructure the €30bn promissory notes created by the last government to stagger the repayment of Anglo Irish Bank debts.
"Austerity on its own will not work but will have to be supplemented with growth enhancing efforts," he said.
"If things stay as they are, Ireland will have to resort to the ESM (European Stability Mechanism) some time in 2013."
Goodbody is the latest organisation to say that the Government will fail to hit targets agreed under the bailout.
The Fiscal Advisory Council said before last month's Budget that Finance Minister Michael Noonan should take €4.4bn out of the economy to be sure of meeting the targets and remove a minimum of €4bn.
In the end, Mr Noonan went for the less ambitious figure of €3.8bn. Citigroup chief economist Willem Buiter said on Monday that Ireland should negotiate a stand-by second bailout.
A European Commission spokesman said yesterday that there was no point in speculating about a second aid programme for Ireland.
"It is not particularly helpful at this point in time to fuel speculation about a second programme when the first one is delivering," commission spokesman Amadeu Altafaj said.
Like almost all independent economists, Mr O'Leary doubts that the Government will meet its growth targets this year.
His new forecast sees the economy expanding 0.7pc this year and again next year. That's half the official estimates for 2012. Domestic demand is seen contracting by 2.6pc.
Ireland has already endured the 14th worst recession since World War Two and the third worst recession since the present financial crisis began, Mr O'Leary added, citing research from Harvard University.
Poor industrial production figures for November published by the Central Statistics Office yesterday added to the growing evidence that the domestic economy is still in trouble.
"This is an exceptionally shallow recovery from a very deep downturn," Mr O'Leary wrote in his report.
"The broad conclusion must be that we are now moving firmly into the realms of the stressed macro-economic scenario outlined in the bank stress tests published last March."
The country faces six challenges this year: the probable referendum on the fiscal compact; debt sustainability; the plans to re-enter the debt markets; arrears in the banking system; spending cuts; and improving the current account surplus.
Mr O'Leary supports Mr Noonan's description of any referendum on the new fiscal compact agreed by 26 of the 27 EU member states last month as a referendum on the euro itself. Bailout countries will have to support the compact in return for aid, he said.
The Government says it is waging a behind-the-scenes campaign to get other European countries to extend the repayment period for money borrowed to bail out Irish banks, including the promissory notes used to pay for the bailout of Anglo.
Without such an agreement, Mr O'Leary calculated that the debt-to-GDP ratio will hit 124pc in 2014, compared with 25pc in 2007.
Interest costs will rise to 6pc of GDP or 17pc of total government revenue, he added.