Ireland 'unlikely' to suffer Greek-style crisis
Published 25/09/2010 | 05:00
Ireland is "very unlikely" to experience a financial crisis as severe as the one that forced Greece to seek an international bailout earlier this year, said Goldman Sachs yesterday.
"A repeat of the Greek debt turmoil in Ireland is very unlikely," Michael Vaknin, a senior fixed-income strategist at Goldman in London, said in a note. "With Irish spreads already at all-time highs, we would argue that refinancing risks in the Irish debt market is aggressively priced in already."
The extra yield that investors demand to hold Irish bonds over German bunds has surged to a record high as investors fret about the country's ability to cap the cost of its bank bailout and cut the budget deficit.
The spread yesterday widened 12 basis points to 430 points and has swelled 112 basis points in the past month.
Ireland's economy contracted 1.2pc in the second quarter from the previous three-month period, and Goodbody Stockbrokers said yesterday that the Government may need to step up its austerity drive in December's budget.
Finance Minister Brian Lenihan said it was "too early" to signal a tougher budget for next year. He has pledged to cut the deficit to 3pc of gross domestic product by 2013 from 14pc last year.
Goldman said that Irish banks can avert liquidity shortages by turning to the European Central Bank's emergency lending operations.
Another positive for Ireland was that the ECB was now prepared to buy European sovereign debt, unlike at the depths of the Greek crisis in April and May, Goldman said.
Ireland's Government could also turn to the European Union's rescue fund if needed, Goldman said.
The investment bank also noted that the country had a "fairly significant" cash buffer worth 10pc of gross domestic product.
Investors have dumped Irish bonds partly on concern that the cost of nationalising Anglo Irish Bank last year will widen.
While the State has already poured €22bn into the bank, Standard & Poor's estimates that the final bill may be €35bn, or 20pc of GDP.