MINISTER FOR FINANCE Brian Lenihan met the EU Competition Commissioner Joachím Almunia yesterday to discuss the fate of the collapsed Anglo Irish Bank.
He has reportedly asked that Ireland be allowed to extend the state’s guarantee on large corporate deposits in Anglo Irish Bank.
Although a final decision by the commissioner will take some time, both Lenhian and Alumnia described the meeting as “constructive”.
Meanwhile, concerns about the escalating costs of a rescue could threaten Ireland’s creditworthiness.
Although the state has implemented deep cuts to public spending, analysts are beginning to mark Ireland as potentially becoming the next European economic danger zone, after Greece.
Last week, the bank announced largest corporate loss in the history of the state: posting a record loss of €8.3bn for the first half of 2010.
Writing in the Financial Times, Wolfgang Munchau gave a grim assessment of Ireland’s economic prospects, outlining how economists Peter Boone and Simon Johnson concluded Ireland will have to spend the equivalent of a third of GDP to bail out the banks:
They concluded that with 10-year market rates at current levels – close to 6 per cent – Ireland is effectively insolvent.
To correct this Ireland would need to generate spectacular rates of future growth. But do we really believe that the Celtic Tiger trick can be replicated? Was the presence of a global financial bubble not inherent in that model?
Last week, Standard & Poor’s cut Ireland’s credit rating to AA-, which is its lowest position in 15 years. The credit ratings agency cited the cost of the bank bailout for the downgrade – believing it will eventually rise over €50 billion.
As a result of the S&P downgrade, markets are now pricing in a 25% risk that Ireland will default at some point over the next five years.
This morning, the interest rate demanded by investors buying Irish bonds spiked to almost 6.15%.
Tom McDonnell, an analyst with economic think-tank Tasc, explained to euobserver.com: “For each of the next 10 years, Anglo Irish will be the fourth biggest government expenditure after social welfare, health and education.”
Brian Lenhihan will meet with other EU finance ministers in Brussels today.
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