Saturday 24 March 2018

Maeve Dineen: If bond market is right, then recovery is dead in the water

Maeve Dineen

A glitch in my computer system meant I had to delete 65,000 emails last week -- one by one. The process was soul destroying at times, but also very interesting. As my finger pressed delete again and again, it was like fast forwarding through the past few years of boom and bust.

The process left me feeling pretty queasy and then I suddenly realised why: the emails I was getting back in 2007 and 2008 were eerily like the emails I'm getting today.

In 2007, when the credit crisis first broke, my inbox was being flooded with broker reports arguing that the crisis in the US was unlikely to spread to Europe and even more unlikely to spread to Ireland because our banks were nothing like as irresponsible as their feckless US counterparts.

It took many of the email writers almost a year to finally admit the banks here were in trouble. By then, the narrative had changed. Now the story was that the government guarantee was a brave and daring move that would eventually save the banks from temporary problems related to market confidence and Anglo Irish Bank.

In 2010, the emails so far have argued that we were decisive taking action and had put blue water between ourselves and the likes of Greece.

So how come, rather unexpectedly last week, investors got so nervous about the state of our economy that they demanded almost twice as much money to buy bonds compared with three weeks ago?

The credit markets tend to sniff out trouble first and have acted as an early warning alert at every stage of the financial crisis over the past three years. If the bond market is correct, then this recovery for Ireland is dead in the water.

We need to face facts and the facts are most of us have been too optimistic at almost every single juncture in this crisis.

Look at house prices, unemployment stats, our yawning budget deficit or the banks -- all of which have produced nothing but bad news time and time again. At every turn, they have disappointed -- especially the banks and more especially Anglo. It's over a month behind in transferring its second tranche of loans to NAMA, and no one knows just how much it will cost to bail it out.

And therein lies the rub: the absence of this final figure is one of the main reasons for last week's shock doubling of borrowing costs.

We have done all we can and yet we are still vulnerable. As a country we remain more like Allied Irish Banks, promising to reform our ways and sell off the family silver, rather than Bank of Ireland, which has made some real progress in these respects.

We may have been seduced by Finance Minister Brian Lenihan's undeniable charm and temperament, which makes him one of life's eternal optimists. We may also been sucked in by his department and the Central Bank, which have been too sanguine for too long. While at the same time, the Irish Government has deliberately avoided addressing the genuine threats to Ireland's long-term fiscal problems, which stem from the extravagant public sector pay and pension benefits.

Whatever the reasons, the truth is we have hoped for the best at every juncture of the crisis and called so many bottoms you'd think we were in a strip club.

As I deleted those emails last week and the bond markets convulsed once again, I finally began to lose my nerve and suspect we are already in a double-dip recession that could get much worse and leave this country in ruins. There are simply too few signs that we are facing up to our problems.

In retrospect, the crisis abated as the US and Europe pumped money into the system but this has only brought us so far. The fear is back. Confidence is once again crumbling in the US and the UK as growth falters and unemployment rises further. When America sneezes, Britain catches a cold but we catch pneumonia.

The economy is going into wind down before we had time to get back on our feet and our future now lies in many hands. This is what happens when you owe money and are in a single-currency union.

But tomorrow, when the NTMA tries to raise another €1.5bn by selling four-year and 10-year bonds, we will have a clearer view of the fate that awaits us.

Irish Independent

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