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Dublin: 15 °C Monday 13 July, 2020

Ireland has "a month to stop bailout" - UCD economist

First Colm McCarthy, now Karl Whelan says the movements in bond markets leave Ireland on the brink of default.

UCD's Prof Karl Whelan:
UCD's Prof Karl Whelan: "The government’s various announcements haven’t convinced markets that we are on a credible, stable path."
Image: University College Dublin

IRELAND MAY FIND itself requiring an international bailout within a month if it cannot convince international investors that it can gets its national spending back under control, according to a UCD economist.

Prof Karl Whelan – a former economist at the US Federal Reserve, now on the staff at Belfield – told Bloomberg that the increasing cost of government borrowing on the international markets was sign that the “government’s various announcements haven’t convinced markets that we are on a credible, stable path.

“The budget is going to be crucial in determining if we can change that attitude.”

If the cost of borrowing continues to escalate to a point where Ireland can no longer afford to borrow at the rates demanded by the market, it will likely have to go to the International Monetary Fund or European Central Bank for assistance in borrowing to run the country.

The cost of ten-year government debt has breached 7.2% on secondhand markets this morning, the highest it has ever been – making borrowing for the Irish government more expensive now than it was for the Greek government in April before it required European assistance.

The spread over German debt reached 4.67%, Bloomberg says – 0.37% higher than it was when the government announced the final cost of the banking bailout on September 30, when it also said it would be cancelling the scheduled bond auctions in October and November because of the high interest being demanded by the world’s investors.

Whelan’s UCD colleague Colm McCarthy – who on Sunday wrote that the IMF was “at Ireland’s door” – said a “successful re-entry to the market in the New Year is still doable. If investors are convinced and borrowing costs come down, a bailout is far from a foregone conclusion. If not, then it’s touch and go.”

Portugal also had a torrid day on the world’s bond markets, seeing its ten-year bond premium grow to 6.15% – near a record high, though still more than a full percentage point below that of Ireland.

The high interest being demanded by investors indicates that they believe there to be a significant chance that Ireland will find itself unable to meet its repayment obligations into the future.

The national budget being published on December 7 will follow the publication later this month of the government’s four year budgetary strategy which will see it outline how the national budget deficit will be reined back to within 3% of GDP by 2014.

Why you should care about the bond market chaos >

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Gavan Reilly

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