Ireland 'may need further EU help'

 

Ireland may need further EU help after 2013 to raise funds, a new report has claimed.

The report from NCB stockbrokers said sovereign debt restructuring cannot be ruled out, although it is seen as a last resort.

"In the low growth scenario, and even in our base case scenario, it is difficult to see how Ireland would be able to wean itself completely off EU aid post 2013. As such, our central view is that Ireland will need EU help to raise funds and as a result be rolled into the permanent European Stability Mechanism," the report said.

A lowering of the interest rate on the EU loans would give the economy a better chance of weaning itself off aid, NCB said.

The bond market has already priced in the worst, the report said.

"We see the markets implied probability of default on Irish bonds maturing post June 2013 as being too high," it said. "Even though restructuring is a possibility, we would advocate switching a portion of bond funds into Irish government bonds to avail of the pick-up in yield."

The report predicted a two-tiered recovery for the Irish economy, as exports continue to grow but domestic demand remains weak. The recovery this year will also be jobless, and employment is expected to contract slightly in 2011.

NCB noted that Irish competitiveness had improved through the economic slump, and infrastructure had been significantly improved throughout the course of the boom. 

However, the property market will also continue to decline, the report said, predicting an average national peak to trough decline of around 45-55 per cent.

"This equates to a further 10 per cent fall from peak levels," NCB said.

In a separate report today, Goodbody Stockbrokers said Ireland needs to share its banking debt with the European Union as the country can't continue to support it alone.

Goodbody economist Dermot O'Leary and Juliet Tennent said the Government should discuss restructuring €21.5 billion in unsecured senior bonds at a European level.

Another option would be to allow the European Union's rescue fund, the European Financial Stability Facility, to directly recapitalise Irish banks, they said.

"If the Irish banks are systemic to the European banking sector, then collective responsibility must be taken for sorting the problems," Goodbody said in the report. "It is in Europe's interests, as well as Ireland's, that the problem is solved."

The longer bank debt remains the sole responsibility of the Government the more likely it is that the sovereign debt will need to be restructured, they said.

Minister for Finance Brian Lenihan said yesterday the Government is pressing for a "substantial discount" on €20 billion of unsecured senior bank bonds, a push resisted by the European Central Bank.

The Government raised the issue of burden sharing for unsecured bondholders with the EU during negotiations for its €85 billion rescue package in November, only to rebuffed by the ECB, Mr Lenihan said yesterday.

ECB president Jean-Claude Trichet said yesterday that Ireland needs to press ahead with its fiscal austerity measures and imposing "haircuts" on investors isn't part of the plan. Ireland shouldn't unilaterally restructure senior bank debt as funding for the sovereign and companies could be "hampered for years to come", according to Goodbody.

Additional reporting: Bloomberg