'No chance' Ireland will be forced out of monetary union
Standard Bank exit suggestion was 'completely uninformed'
Finance Minister Brian Lenihan. Photo: Collins
THE Department of Finance has rubbished a claim by Standard Bank that Ireland could be heading for an exit of the euro currency.
In a report out yesterday, Standard Bank said that Ireland -- along with Greece -- was among several countries in an "intolerable" economic situation that might lead to bailouts or even an exit from the euro area by the end of next year.
"Countries like Ireland and Greece may not be able to grow out of the current crisis," said Steve Barrow, head of Group of 10 foreign-exchange strategy at the bank in London.
"With interest-rate cuts, exchange-rate depreciation and significant fiscal support all off-limits for these countries, bailouts or even pullouts from EMU may happen next year."
But the Department of Finance said the Standard report was an example of completely uninformed comment, adding that there's "no chance" we would leave the euro.
Undermine
"This suggestion is an example of completely uninformed comment," the department said in a statement.
"As the Minister for Finance stated nine months ago, it is akin to stating that Texas will leave the dollar."
In his report, Mr Barrow had said the absence of a mechanism to permit so-called fiscal transfers within the 16-nation eurozone might undermine the exchange-rate system.
Concern some nations will need to be rescued may drive the premium investors demand to hold 10-year Greek debt instead of benchmark German bunds to 400 basis points next year, from 214 basis points today, and the Irish premium may also jump, he said.
"The widening difference in yield, or spread, between Greek and Irish bonds and German securities may accelerate, increasing the debt burden for these countries," Mr Barrow wrote in the report.
The Irish-German 10-year spread may rise to 300 basis points next year, from about 170 basis points, he said. The spread averaged about 43 basis points in the past five years, with the Greek-German average at 67 basis points in the period.
"It can, in many ways, be a more destructive line of attack for the market than currency pressure," Mr Barrow wrote.
Greek yields soared this week after Fitch cut the country's credit rating, saying Prime Minister George Papandreou's government hadn't grasped the severity of the debt crisis.
Standard & Poor's signalled it may also reduce Greece's ranking. The spread with bunds reached 251 basis points yesterday, the widest since April 2.
Default
Greek Prime Minister George Papandreou said that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker saw "no possibility" of a default by his country.
"There is no possibility of a default for Greece," Mr Papandreou told reporters at a European Union summit in Brussels.
He also said there was no possibility of Greece leaving the euro area.
- Pat Boyle
Irish Independent
