Ireland 'must renegotiate debt deal or face default'
Published 10/01/2012 | 05:00
Visiting economist warns restructuring inevitable unless Government manages to get new terms
Ireland will need to negotiate a fresh debt deal with Europe and the IMF if the country is not to have a default, a leading economist with Citi has said.
Willem Buiter, chief economist at Citi, is predicting that Portugal and Greece will both have to restructure their debts -- effectively a default -- but Ireland can still avoid this fate if it is successful in negotiations with its international lenders.
He also said that Ireland should have a second bailout plan ready when the first programme comes to an end. He said Ireland should avoid having to do any last-minute negotiations.
"Ireland needs further assistance," said Mr Buiter, speaking in Dublin. He said Ireland was in "very bad fiscal shape", and a reduction in the cost of debt was needed if Ireland was to avoid restructuring its debts -- a process Greece was currently engaged in.
Mr Buiter said "concessions" from official lenders to Ireland were required.
He said one of the key concessions related to the cost of IOUs (or promissory notes), which have gone into Anglo Irish Bank (now called IBRC).
Mr Buiter said these debts came with punitive interest rates of about 6pc to 7pc, but could be financed at about 3pc if the burden was taken up by Europe, via the European Financial Stability Facility (EFSF).
He said such a deal would give Ireland "material help" and the EFSF would probably be happy to do such a deal in time.
"What Ireland needs is to refinance expensive debt more cheaply," said Mr Buiter.
In a gloomy assessment of the global economy, Mr Buiter also predicted that once the US elections were over, borrowing costs in the US would also rise.
Despite other market players dismissing the idea that US borrowing would surge, Mr Buiter said it was inevitable as the markets took a close look at the large deficits America was running.
Mr Buiter said he saw little sign of changing policies at the ECB where there was a "teutonic majority" and as a result expansionary policies were not likely to be experimented with in Europe.
He was also downbeat about the chances of Greece restoring its fortunes, and that next year would see Portugal restructuring its debts as the current figures were unsustainable.
He also said much of the European banking sector would fall into public ownership over the next few years, just as it had in Ireland.