Thursday 27 July 2017

IMF wins key battle with Europe on debt

There are positives to the rate cut, but there is a long way to go before PIGS can fly on credit market again, writes Colm McCarthy

It has been a good week from Ireland's perspective but it would be unwise to exaggerate. Last Thursday's deal to fix the eurozone banking and debt crises has done more than the markets expected but less than will ultimately be required. The deal has succeeded in avoiding, for now, a disorderly Greek default.

But even with a measure of debt relief and an interest rate cut, Greece remains well removed from any realistic prospect of being able to borrow in the markets. The other two countries in intensive care, Ireland and Portugal, will also benefit from the interest rate reduction but there has been no debt relief for them. Indeed the summit communique contained an emphatic statement that Greece is a special case and that there will be no haircuts for creditors of the other two.

All three 'programme' countries will welcome some other features of the deal, including extensions to debt maturities. But Ireland's prospects of early re-entry to the bond market have improved only a little. On Friday the interest rate on Ireland's 10-year bonds fell back to 12 per cent, having been above 14 per cent some days earlier. This is still entirely inconsistent with market re-entry and signals a high perceived probability of default.

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