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The Rock of O'Sisyphus

The FT’s Alphaville blog says calling in the IMF may be the best option for Ireland. Gulp.

HAVE WE BEEN missing the Irish forest for the (ahem) Anglo Irish trees?

Uncertainty over how much the Irish government will have to fund Anglo Irish’s liabilities before it’s wound down has stalked the market recently.

That’s been wedded to fear that the country’s bad bank will take losses on the assets it’s taking off Anglo and other banks, despite heavy haircuts — but really, more bank losses than expected = ongoing crashes in real estate = fewer fiscal receipts for the Irish state.

Which, as Barclays Capital’s Antonio Garcia Pascual and Piero Ghezzi noted on Thursday, means the Irish sovereign is facing an even stickier situation in the medium term

In a relatively benign macroeconomic scenario, with medium-term real GDP growth of 3.0% and nominal yield of 5.0% and no further significant unexpected bank-related losses, the cumulative primary fiscal balance adjustment required over a five-year period (2010-14) is 11.5% of GDP…

…under a slightly less favourable macroeconomic scenario (real GDP growth of 2.5% over the medium term and nominal long-term yields at 5.5%), the cumulative primary surplus adjustment required to reduce debt to GDP to 60% by 2050 increases to 12.4% of GDP. Under a slightly more severe (but plausible) macroeconomic scenario (real GDP growth of 2.0% over the medium term and nominal long-term yields at 6.0%), a cumulative primary balance adjustment of 13.3% of GDP would be required over a 5 year period.

Joseph Cotterill blogs at

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