Ireland vulnerable to crisis shocks - German economist

German economic ranking places France in fourth place


Ireland is the second most likely country in the euro zone to fall victim to renewed financial turbulence, a leading German economist has forecast.

According to Dr Thomas Mayer, former chief economist at Deutsche Bank, only Cyprus faces a more uncertain future while France is ranked fourth.

“Countries in receipt of rescue measures have a considerable way ahead of them before they will be able enjoy the trust of markets again,” said Dr Mayer of the countries topping his “crisis susceptibility” table. His warning follows IMF concerns in its latest report on Ireland that low growth could see a soaring debt-to-GDP ratio.

Proven crisis factors
Dr Mayer based his study on what he called three proven crisis factors: a country’s dependence of foreign capital to finance private investment and state deficits; its budget deficit and national debt; and the size of its financial sector.

Drawing on existing statistical data, Dr Mayer’s league table is topped by Cyprus and Ireland – with Germany and Estonia at the bottom.

“All programme countries are in the top half,” he notes. “Despite considerable progress in their adaption compared to other euro countries, they still are some way behind based on factors crucial for the crisis,” he added.

Belgium flagged
As well as Italy, the study flags Belgium because of its high public debt and lingering deficit and Malta because of a financial sector out of scale to its economic size.

“[Malta’s] financial sector compared to total economic output is larger than that of Cyprus,” wrote Dr Mayer, “at eight times the size of its gross domestic product.”

The German economist’s attention zeroes in on what he calls the “shocking” placement of France in fourth place – between Portugal and Spain.

“France performs poorly in all indicators,” wrote Mr Mayer, “showing that, compared to the most euro countries, it has barely tackled economic and financial reform.”

France had yet to come under closer market scrutiny due to its political influence in Europe and proximity to Germany, he suggested.

This was “fatal”, he wrote, because it meant “there is a lack of market pressure for reform”.

“Based purely on the economic data, French [bond] could be given a higher risk premia than Italy’s,” he wrote.

His ranking throws up some surprises: despite recent concerns about its economy, Slovenia finishes third last saved, according to Dr Mayer, by its trade surplus, low national debt and small financial sector.