Sobering report by Barclays warns we may yet need IMF
Published 17/09/2010 | 05:00
IRELAND may need to call in International Monetary Fund (IMF) assistance if bank losses rise any further or the economy deteriorates beyond current forecasts, Barclays, one of Europe's largest banks, has said.
In one of the bluntest assessments yet of the Irish economy and banking crisis, the company said assistance from the EU or IMF was not needed -- "at least not yet''.
The report also suggested the Government should seek to do a "deal'' with bondholders at Anglo Irish Bank.
The bank said Ireland had a comfortable position, having raised most of the money it needs this year, but that the country wasn't completely safe.
"Should further unexpected financial sector losses or macro-economic conditions deteriorate... the Government may need to seek outside help."
The bank said a credit line from the IMF could "provide a suitable funding vehicle should this be required by the Irish Government''.
The bank said the cost of bank restructurings (which could come to 31pc of GDP) and poor economic prospects were "unsettling the Irish bond market''.
"While the Irish treasury doesn't have any immediate liquidity needs, the colossal fiscal effort that will be required to stabilise the public debt over the medium term leaves little fiscal space to deal with any further unexpected financial sector losses,'' said the report.
The report describes Anglo Irish Bank as being beyond "the point of no return'' with a shortage of capital and rising impairments due on NAMA loans.
"The main dilemma of the authorities is that the prompt liquidation of Anglo Irish Bank has a very high price tag."
It suggests the Government develops a framework and does a deal with senior bondholders, but gives little detail on how this might be done.
The report comments broadly on how the Irish economy got into trouble in the first place.
"Ireland was probably the most overheated economy among the advanced countries. The impressive growth rates and the fiscal surpluses masked fundamental structural weaknesses.
"The crash in real-estate prices, rapid increase in unemployment and drop in personal and corporate incomes led to the collapse of fiscal revenues in 2009 and to a sharp increase in social benefits.
"In 2010, the overall budget deficit is likely to be close to 12pc,'' it added.
"The bursting of the real-estate bubble and the sharp economic contraction has left the main banking groups significantly undercapitalised, and Anglo Irish Bank, the third-largest banking group, essentially insolvent,'' it said.