Tuesday 6 December 2016

'Yes', 'no' and 'maybe?' to a second bailout

The Finance Minister disagrees, but other experts believe we will need more EU/IMF funding, writes John Reynolds

Published 05/06/2011 | 05:00

ANGRY protests erupted on the streets of Greece yet again on Friday after its prime minister agreed to a savage new round of €6.4bn of cuts, tax rises and a quicker sell-off of state assets in order to secure a second bailout from the EU, IMF and ECB.

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We asked the Finance Minister and several leading economists if we too will soon need a second bailout.

THE FINANCIER

"Ireland will need a second bailout because the assumptions that the EU-IMF had about Greece -- and consequently Portugal and Ireland -- being able to tap the bond markets look like they will prove to be false.

"According to the current plan, Ireland will borrow €3.4bn on the bond market in 2012 and €14bn in 2013.

"What happens here will depend on the results of ongoing discussions about pension funds partially investing in government bonds and on there being any money left over from the bank-rescue fund, but I'm mainly concerned about the €14bn figure.

"Also on the horizon is the June 24 EU summit in Brussels, the result of which will dictate whether private investors' debt in the ESM fund is seen as junior to that of the EU-IMF.

"If it is, then Ireland and any other countries availing of ESM funds will need highly convincing fundamentals, in terms of budgets, economic growth and stable governments, in order to borrow at sustainable rates. Doing that might take some time, perhaps a number of electoral cycles."

Harvinder Sian is Royal Bank of Scotland's chief interest-rate strategist for Europe

THE ACADEMIC

"We definitely will need a second bailout. There isn't enough money in the original EU-IMF loan agreement. It assumes a return to market in 2012 or 2013 that isn't going to happen. In the history of IMF packages, it's not unusual for there to be a second package so we shouldn't be surprised.

"How much we'll need depends crucially on our rate of economic growth, how the austerity measures are implemented and how quickly we can reduce our fiscal deficit. Saying we'd need another €10bn or something like that for example would be too simplistic, because it will depend on all these variables."

Stephen Kinsella is economics lecturer at Kemmy Business School, University of Limerick

THE POLITICIAN

"There's no question of a bailout package having to be brought in next year.

"We have sufficient money from the IMF and from the European institutions to carry the country forward in all eventualities. And the programme runs till the end of 2013, so a second bailout doesn't arise, because of that."

Michael Noonan is Minister for Finance

THE ECONOMIST

"Nobody can say yes or no with any certainty, but there are three key issues to watch.

"The Government has to maintain a steadfast commitment to deficit reduction. We need to stay the course and prove our ability and willingness to manage down the debt and implement the plan agreed with the EU-IMF.

"We're dependent on international economic growth, which has softened recently. If we don't have 2 per cent economic growth next year and 3 per cent in 2013, it'll be difficult for markets to believe in the sustainability of our debt.

"A lower interest rate on our loans or one linked to the economic growth rate would help us, as would the ECB liquidity in our banks being put on a firmer medium-term footing."

Simon Barry is chief economist with Ulster Bank

THE ADVISER

"Providing Ireland doesn't need to borrow any more money before 2012, and there being no more skeletons in the Irish banks' closets in terms of mortgage arrears or other lending losses, it should be able to avoid another bailout. Nor will the country default.

"As long as the eurozone doesn't go through anything horrific in the meantime, the long-term prospects for Ireland are good. Although it will be painful, Ireland can pay its debts.

"That said, if Greece gets a better interest rate on its loans, then Ireland should seek one as well. As long as lenders know they'll get the money back, they might accept a lower interest rate or longer payback term."

Neil Gibson is senior economic advisor at Ernst & Young

THE ECONOMIST

"The current EU/IMF deal provides funding up to 2013. Should the sovereign be unable to access markets in 2013, there's already a contingency there: the European Stability Mechanism (ESM), which has €700bn available.

"As the IMF has recommended, EU policy-makers should ensure that ESM funding is on the right terms, without potential burden-sharing for private investors, so that those European sovereigns that may need ESM funding can re-engage with the bond markets.

"A better-defined ESM framework would remove an obstacle for Ireland in securing private funding and could create a virtuous circle where the likely need for ESM funding would diminish."

Conal McCoille is chief economist at Davy Stockbrokers

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