Irish debt still vulnerable to Greek-style restructuring

Irish government debt is still vulnerable to a Greek-style restructuring, Capital Economics said in a note. The country still hasn’t fully regained the competitiveness lost inside the euro region and remains vulnerable to swings in the global economy, Jonathan Loynes, chief European economist at Capital Economics, said. Debt levels, the housing market and a fragile banking sector may also hamper economic growth, Loynes said.

"Worries about its economic outlook or contagion effects from other troubled peripheral economies could yet re-ignite market pressures and force the Irish government to turn again to outside help," Loynes said. "There is even a risk that Ireland will ultimately need to undergo a Greek-style debt restructuring, perhaps putting its future inside the currency union in jeopardy." Ireland, which sought a €67.5 billion bailout in 2010, is poised to leave the rescue program at the end of the year, after its borrowing costs plunged. Finance Minister Michael Noonan said last month he may seek a precautionary credit line from outside authorities in case bond investors shun Ireland once again.

“Bringing all of the evidence together, it is clear that Ireland deserves a lot of credit for the improvement in its economic performance over recent years,” Loynes said. “But there are good reasons to doubt that Ireland has yet found a way out of the euro-zone’s crisis.”

Bloomberg