Sunday 28 May 2017

To default, or pay through the nose

Should we jump before we're pushed and default on our huge national debt? Roisin Burke looks at both sides

Should Ireland let itself go bust? It's not the Green Jersey option, that's for sure. But national pride aside, is it time to think the unthinkable? Should we jump off the runaway debt-train and default?

Evidence that we could be heading towards going bust anyway is stacking up.

Ireland ranks high on the International Monetary Fund (IMF) list of countries whose national debt will be seriously squeezed in coming years, a report published last week said. We're almost as high on the list as Greece, and we are well ahead of Italy, Spain and Portugal.

Ireland is among the countries "constrained in their degree of fiscal manoeuvre" due to the amount of public debt it is going to run up in the years to come. It's not a crisis situation, but "adjustments" are needed, the IMF said.

Our risk of defaulting on our national debt within five years is greater than that of financially banjaxed Iceland not paying its debts, according to recent market research by CMA, as credit default swaps on Irish Government debt rose, driven by Anglo Irish Bank debt worries.

Some eurozone countries are careening inevitably towards default, Deutsche Bank chief economist Thomas Mayer said earlier this year.

Could Ireland be one of them?

The €25bn-plus Anglo-debt albatross is exercising Ireland's national debt-watchers the most. It's the main cause of our debt as a percentage of GDP ratio being forecast by Standard & Poor's to rise to 136.7 per cent by 2013. That's well over a scary €100bn worth of debt to annually service.

Another IMF report out last week pointed to the danger of highly indebted countries like ours reaching a "debt limit" that would challenge fiscal stability.

The 'debt limit' catalysts for Ireland are racking up: historically high bond debt spreads; soaring Anglo losses; a plummeting tax take; Nama; a yawning budget deficit; rising GDP to debt ratio; credit rating downgrades and a battered domestic economy (GNP).

We have borrowings secured to last to the end of next year and we have enough reserves to pay our national bills for a while, but the threat of debt overwhelming us and pushing us into default down the tracks is very real.

If we are heading towards going bust anyway, or at least some dolled-up form of sovereign default like going to the EU Stability Fund support, should we do it now, while we still have some reserves and bargaining power?

Sunday Independent

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