BRIAN LENIHAN has been urged by a number of his senior advisers to spend some of the country’s National Pensions Reserve Fund buying Irish government bonds in an effort to drag down the interest being demanded by the world’s investors.
Reuters quotes a senior official who declined to be named in reporting that Lenihan has been told by a number of advisers to spend the €24bn reserve fund buying back Irish government debt, believing that demand for Irish bonds has effectively disappeared amid fears that Ireland would be unable to repay them.
Proposals to spend the reserve fund – which was originally established in 2001 in order to help fund the bulk of the state’s social welfare bill from 2025, when the country’s demographic will result in a higher pensions bill – buying national bonds would require legislation, Reuters explains, but could conceivably help the country manufacture new demand for its bonds, described last week as ‘bidless’ by influential blog Zero Hedge.
The price of Irish borrowing today reached yet another all-time record, closing at 7.872% – a gain of a quarter of a percentage point on this morning’s value – as investors once more shirked the prospect of investing in the Irish state.
The proposal would likely be a difficult one to pass in the Dáil, however, especially given the opposition to the use of €10bn in the fund to but stakes in the Irish retail banks.
The official told Reuters that the fund was “an asset that the government has which they can choose to use – it’s there,” adding that the “firepower” of the €24bn fund could encourage other investors to buy Ireland’s debt.
The Economic and Social Research Institute, through economist John FitzGerald who now sits on the Central Bank Commission, has previously advocated a similar move.
The proposal has been derided by Trinity College economist Brian Lucey, who on Twitter said that “the P [in NPRF] is pension, not Ponzi”.
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