New deal 'won't reduce debt by more than €10bn'
THE agreement forged in Brussels last week won't reduce Ireland's national debt by more than €10bn, NCB Stockbrokers forecast in a report about the implications of the recent summit.
The big challenge for the Government remains the restructuring of the banking sector, NCB added.
"We do not believe there'll be a major reduction in Ireland's gross debt as a result of the Spanish deal," NCB economist Brian Devine said yesterday.
"Based on the entities as they currently stand we find it hard to see how Ireland will get much more than a €10bn reduction in its debt," which equates to 6pc of gross domestic product, he added.
While any reduction in the national debt is welcome, NCB says the main focus must be a "complete restructuring" of the banking sector.
"This will require additional resources and the Spanish decision will allow these funds to be provided by the European Stability Mechanism (ESM)," he added.
The International Monetary Fund (IMF) has been pushing a restructuring of Permanent TSB and a similar template should be applied across the Irish banking system to leave a banking system with three "good" Irish banks purged as much as possible of non-performing loans and tracker mortgages.
"Ireland's banking system should have been properly restructured in November 2010 at the time of the bailout when Ireland took the bailout but status quo remained," Mr Devine said. "The Spanish deal provides another opportunity for this to happen."
The promissory notes linked to the bailout of Anglo Irish could be extended but it is unlikely that the ESM will "simply write a check for the promissory notes" reducing Ireland's gross debt, he adds.
Unemployment, which hit an 18-year high of 14.9pc last month, will remain above 10pc until 2015, NCB said. "As such, there should be no surprise that property prices continue to decline, mortgage arrears continue to rise and retail sales remain weak."
Mortgage draw downs will remain "anaemic and will not contribute much to the near term recovery", he added.
NCB sees the economy expanding 0.3pc this year and 1.7pc next year. This slow growth will push the ratio of debt to gross domestic product as high as 123pc in 2014.