Markets lose faith in 'vulnerable' Ireland
Published 15/08/2010 | 05:00
One of Europe's leading financial institutions has delivered a damning indictment of the Irish Government's stewardship of the banking and economic crises, saying Ireland is now once again "vulnerable".
Several economic notes from Deutsche Bank in the UK -- including one not meant for publication but which was obtained by this newspaper -- reveal a marked deterioration in the sentiment toward Ireland on the world markets.
Despite Finance Minister Brian Lenihan's repeated claims that Ireland enjoys considerable international confidence, it is clear that since the start of the summer recess such confidence has eroded.
According to Deutsche Bank (DB), the main cause for the increased concern last week was the injection of a further €14bn of taxpayers' money into nationalised Anglo Irish Bank, bringing the total amount to €24.4bn.
Given the situation, Ireland is likely to come under pressure from speculators in the coming days, with 2014 and 2020 bond auctions this week likely to be closely monitored.
Amid the rising cost of borrowing and the necessity for the European Central Bank to step in and buy up Irish debt on Thursday, UK-based analysts at Deutsche Bank said Ireland needed to offer clarity on the cost of its banking bailout and questioned whether our austerity programme was enough to maintain international confidence.
"Ireland continues to attract unwanted attention due to the negative news flows related to its banking sector. There were fresh media reports that the authorities now admit that there is a 'significant risk' that the bailout for Anglo Irish Bank may rise further. There are also reports which suggest that the risky loans transferred by Anglo Irish Bank to the Government's Nama are performing below expectations even though these loans were transferred at a 55 per cent haircut," one of the reports said.
"For us, Ireland is proof that to address the problems associated with the most indebted sovereigns and financials, we need a constant positive following wind for many quarters, if not years to come.
"While essential deleveraging is taking place, these entities remain vulnerable. Ireland has been the poster child for many optimists convinced that if a country has the necessary discipline and appetite then it can address major problems itself. While this may still be the case, there seems to be increasing headline risks from an economy that was a very early mover in terms of austerity."
A second, harder-hitting memo to staff, obtained by this newspaper, reveals that there has been a marked deterioration in sentiment toward Ireland.
It said our position was destabilising because of a summer news flow that had become "incrementally worse".
"In terms of the fiscal deficit, there is no sense that Ireland is pushing for more [than the €3bn], and with Spain and Portugal having delivered supplementary consolidations this summer, Ireland's consolidation plan might look behind the curve.
"The fiscal deficit is only stabilising and within the details income tax is an element of weakness. Nama, the bad bank, is generating a negative news flow too."
On the positive side, DB pointed out that, from a sovereign financing perspective, Ireland has been pre-funding, and that by mid-2010 it had already funded 80 per cent of its 2010 requirement.