Prediction of second bailout 'fanciful'

Tue, Mar 6, 2012, 00:00

A PREDICTION by rating agency Moody’s that Ireland will require a second bailout has been dismissed as “fanciful” by Minister of State for Finance Brian Hayes.

However, he said that “to convince the markets to lend us money, we will certainly need the European Union as insurance or as a backstop”.

Mr Hayes told a meeting of Young Fine Gael in Cork last night that rejecting the upcoming fiscal treaty referendum would “seriously damage” Ireland’s plans to return to the markets for normal fundraising.

It would also cut Ireland off from European funding in the event of market refusal to lend to us, he said.

The Minister claimed that a “backstop” was not the same thing as further assistance which Moody’s and US bank Citigroup believe Ireland will ultimately need.

In its weekly credit outlook, Moody’s yesterday predicted the Government would have to rely on the European Stability Mechanism (ESM) – the EU’s planned permanent bailout fund – for additional funding after the existing bailout programme ends.

Separately, Citigroup economist Michael Saunders said investors face a 50 per cent chance of sharing in losses in Irish Government debt.

Speaking to The Irish Timesahead of his speech in Cork, Mr Hayes said the ESM would “effectively act as backstop if things don’t go well” when it comes into being in March of next year, assuming the fiscal treaty is ratified. “It’s a prudent strategy to be able to access this fund into the future, and the best way to have absolute certainty about that is to be part and parcel of the EU’s fiscal treaty.”

On Moody’s forecast of a second bailout for Ireland, Mr Hayes said that “making predictions about 2013 is fanciful, given the extraordinary volatility we’re witnessing from one quarter to the next and given the crisis that the country and euro zone have come through”.

Moody’s said yesterday: “We expect Ireland to face challenges regaining market access in 2013 and it will likely need to rely on the ESM, at least partially, when the current support programme expires.”

The agency also warned that failure to ratify the European Union’s fiscal treaty would make Ireland ineligible to access further ESM funding, which would otherwise have provided the country with a credit-line until 2014.

While Ireland would continue to receive loans under its EU-IMF financial aid package regardless of the outcome, it said, a No vote would cause Ireland to lose the ESM’s “safety net” beyond 2013.

“If voters reject the referendum, it could also leave Ireland isolated, particularly if it ends up being the only euro area country to reject the pact,” it said.

Moody’s also predicted the Irish referendum could prove to be a “litmus test” regarding public support for austerity and “financial conditionality” across the euro area.

Ireland’s decision to hold a referendum on ratifying the compact was “credit negative”, the agency said.

In a weekly note to investors, Citigroup’s Mr Saunders said: “We still expect a sizeable growth undershoot and deficit overshoot, and expect that Ireland will need a second financing package ... beyond 2013.”