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Dukes: we will need more help to avoid defaulting

THE State will need more help to avoid defaulting on the national debt, Anglo Irish bank chairman Alan Dukes warned yesterday.

"If nothing more is done than has been done up to now, then there will be some kind of default," the former Fine Gael leader said.

Mr Dukes' comments on 'The Marian Finucane Show' following the bank stress tests last week were echoed by several leading economists who live in Ireland and overseas. They all believe further help from Europe is the only solution to the country's problems.

UCD economist Ray Kinsella said Ireland's problems "can only be resolved within the eurozone and the failure of the eurozone to accept its share of the crisis might send Ireland to an unwanted default during the lifetime of this programme." The programme ends in 2013.

Jim Power, an independent economist, said last week that Ireland would default unless helped by Europe and it could lead to a similar situation to Argentina where middle class people had to scavenge in dustbins for food.

"If Ireland does not get meaningful assistance from Europe, sovereign debt default and/or exiting the eurozone would become inevitable," Mr Power said.

Economists overseas also appeared unconvinced by the stress test and the Government's decision not to force senior bondholders to take losses.

Nobel Prize winning economist Nouriel Roubini said the Government's rescue package risked deepening Ireland's debt crisis.

"Taking all of the losses of the banking system and putting them on the balance sheet of the Government doesn't make sense," said Mr Roubini. "Eventually, the back of the Government will be broken."

Mr Roubini said that a better solution would be to take the senior secured and unsecured debt of the banks "reduce it, convert it into equity so you recapitalise the banks that way and you're not adding further losses to the balance sheet of the Government.

"Otherwise, you're going to have not only a banking crisis, but also a sovereign debt crisis.

"At some point, we need to recognise that these are not liquidity problems of government or banks, but solvency issues, and where there are solvency issues, all the market-orientated but coercive restructurings of public and private financial debt is necessary to avoid this insolvency," he said.

His analysis was echoed by Commerzbank economist Peter Dixon who said default was "inevitable", adding that Ireland was in a hole and should stop digging.