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'Shocking' estimates will push up debt to GDP's danger zone

THE new figures for bank losses will increase the national debt by around six percentage points of economic output (GDP), analysts said yesterday.

The debt -- which fell to as little as 30pc of GDP during the boom, will peak at over the psychologically damaging figure of 100pc as money is borrowed to fund the bank and cover the budget deficit, even on optimistic projections.

Other EU countries have debt burdens of this level, and more will have it in five years' time.

Such a figure is manageable, although it will require €12bn a year in interest payments. But slippage could provoke another crisis in the bond market.

Meanwhile, analysts had a mixed reaction to the Central Bank's announcement. While some took comfort from the certainty it would bring to the market, others focused on the individual banks' funding requirements.

Davy Stockbrokers said the announcement would bring much-needed clarity.

"While the magnitude of the banking costs are a negative surprise, the greater degree of finality provided with today's estimates will in time calm markets," analyst Aidan Corcoran wrote in a note.

"Likewise, while the consumer may fear the additional consolidation measures to be announced, the sense that the worst is behind us will be a strong comfort."

"Investors have been looking for clarity and believable guidance on how bad things are," said Padhraic Garvey, head of debt strategy at ING Groep NV in Amsterdam. "This morning should go some way to satisfying such calls."

Dublin-based NCB Stockbrokers described the cost of the recapitalisation as "disturbing", but took some positives from the announcement.

"While the continued rise in the cost of the Irish banking recapitalisation is clearly disturbing, this latest regulatory assessment should bring a degree of closure to the NAMA transfer process," NCB said.

"This recent scrutiny over the Irish banks' solvency should go some way towards restoring investor confidence, albeit we believe that dependence on government guarantees is likely to persist for the foreseeable future."

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However, NCB analyst Ciaran Callaghan described the announcement as "very disappointing". "Overall, it's quite worrying that banking costs continue to rise."

The Government announcement was warmly welcomed by European Competition Commissioner Joaquin Almunia, suggesting it would not run into the same difficulties as earlier bank rescue proposals.

Mr Almunia said it brought clarity to the remaining transfer of assets to NAMA.

Others took a broader view.

"The final estimates are shocking, one would think that this draws a line in the sand on the issue," said Dermot O'Leary, of Goodbody Stockbrokers.

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