Thursday 14 December 2017

What happens if we go down the Greek route

Laura Noonan

Best Case

•Ireland's bondholders agree to a voluntary 50pc haircut, like Greece's did.

•Our national debt, excluding the money we've gotten from the bailout, is halved from €150bn to €70bn and annual repayments and interest bills are halved too.

• The annual budget deficit is reduced because of lower interest payments and lower repayments, so austerity is alleviated.

• The European Central Bank (ECB) agrees to keep on funding Ireland's banks to the tune of about €120bn.

•Ireland returns to the bond markets in 2013. The markets charge a lower interest rate, because Ireland's debt has been halved, so the chances of defaulting again are seen as slim.

Worst Case

•Ireland's bondholders refuse to take a voluntary haircut because they believe Ireland (unlike Greece) is in a position to service its debts.

•The Irish Government takes unilateral action to force involuntary losses on bondholders.

• The ECB responds by forcing Ireland out of the euro and pulling €120bn of cheap funding from the Irish banks.

•The ECB stops funding the banks, depositors lose some of their money. Multinational companies reject Ireland since it's no longer in the eurozone.

• Ireland is locked out of the bond markets for decades, because bondholders are scared Ireland will refuse to repay them again.

• Ireland remains under an EU/IMF programme for decades because it can't get funding from anywhere else.

•Austerity is unlikely to be harsher, since the debt bill will have gone down, but the EU/IMF have control for longer. They could also impose new conditions like changing the corporate tax rates.

•Borrowing costs are permanently higher when Ireland does return to the bond markets, because investors are pricing in the risk of another default.

Irish Independent

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