Tuesday 20 February 2018

Beware of short-sighted rhinoceros in the room

We should not let the negative views of international agencies derail our recovery bid, warns Marc Coleman

A nuclear war, a devastating famine or a protracted civil war. Racking my brains, I have been trying to think about the kind of events that would make sense of Standard & Poor's latest view of our economy. We know original estimates of Nama assets were over-optimistic. We know that there are more jolts and bumps along the road to recovery, the latest being worries about a double-dip recession in the US.

But the assumption, made this week by S&P in downgrading Ireland's credit rating by a notch, that Nama assets were worth nothing -- absolutely nothing -- has already been disregarded by the market as ludicrous. The kind of scenario it would involve is the stuff of disaster movies, not reality and when the day before National Treasury Management Agency boss John Corrigan described S&P's logic as "flawed", he was being polite. Even S&P themselves admitted that Ireland still had a "very strong" credit rating and that "the capacity of the Government to meet its financial commitments is still very strong". A day later this was proven right. Shrugging off negative sentiment, bond markets lapped up €600m worth of Treasury Bills at a lower interest rate than before S&P's pronouncement. The final word on this matter is that whereas S&P describe the outlook for Ireland's future rating as "negative", Moodys and Fitch -- the two other leading agencies -- describe it as "stable". In the words of Meatloaf, two out of three ain't bad.

Nonetheless sentiment about Ireland is more negative than it should be and Central Bank Governor Patrick Honohan was right some weeks ago to point out that the spread on Irish Government bonds over benchmark German bonds -- a whopping three and a half percentage points -- is far too high. Unlike Portugal, Greece, Spain or Italy we have a healthy balance of payments situation, a growing population and a tough fiscal regime. But like a rhinoceros, the vision of international market commentators blurs once they start looking at things more than a few feet away from their front horn. Like the media their focus on blurry superficiality has swung from the ludicrously optimistic view of five years ago to an opposite, equally destructive and stupid extreme of despair now.

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