EU LEADERS MEET today to finalise the details of the fiscal compact treaty which aims to enshrine rules preventing another financial crisis like the current one that has gripped the eurozone for the past four years.
It is a financial crisis that has seen three eurozone countries seek an international bailout with Ireland widely regarded as having performed best in meeting its obligations, meeting the terms of its programme and availing of the bailout facility.
It is hoped and indeed expected that when the current funding programme ends we will be able to return to normal lending markets in the middle of 2013. Last week a refinancing of government debt was heralded as an indication that there is an appetite for Irish government bonds.
Finance Minister Michael Noonan describes suggestions of the need for a second bailout as ludicrous while Social Protection Minister Joan Burton had to go on national radio to clarify that she did not believe we would need a second funding programme.
Unsurprisingly not everyone is convinced by the government’s view and TheJournal.ie has spoken to a number of economists in recent days, most of whom believe the situation is far from clear.
In fact only one of ten we spoke to indicated that it was certain Ireland would return to normal lending markets when it is scheduled to do so. Five said it was likely we would need a second bailout of some sort next year while the remaining four were unsure, mostly saying it was impossible to tell at this point and that much depended on external factors in the eurozone.
Here’s what a wide-range of economists and commentators we spoke to had to say:
Colm McCarthy, the author of the report on public sector reform and the sale of State assets, believes that the prospect of a second bailout cannot be ruled out but says:
You just can’t predict the future, it depends on whatever happens in the wider economy.
The UCD economics lecturer says much will depend on the appetite for Irish government paper when it comes to considering re-entering normal lending markets in the middle of 2013.
More certain of what will happen is Fergal O’Brien, an economist at business and employer advocate IBEC, who says it is unlikely Ireland will need a second bailout.
“A lot is going to depend on the external environment. It’s going to heavily influenced by the eurozone but there’s a number of positive signs,” he says. “The yield on Irish bonds is coming down and if that continues we should be in sustainable territory by the middle of next year.”
He says there was encouraging signs from the Troika in terms of the shift in its position on the sale of State assets and being able to use the money to create jobs. O’Brien believes that if we can “deliver the austerity as per the agreement” it would “help us a lot if we can get some concessions”.
Rowenna Pecchenino, the head of the economics department at NUI Maynooth, says a lot will depend on what happens over the next year. “I’m one of the economists who doesn’t like to make predictions as any forecast is certain to be wrong,” she says. But she does believe the talk of the need for a second bailout is unhelpful.
Such talk heightens the feeling of fear and dread to say we need another one. I don’t think it’s very helpful.
At KBC Bank, the economist Austin Hughes believes that at this point it looks less likely that Ireland will be able to fund itself in the markets next year. ”There has to be a significant change in risk appetite for sovereign debt in the eurozone. Markets have the fear that current uncertainties have not been put to bed,” he says.
Saying yes or no at this point is very premature. It’s like assessing what the end of a league season is going to be. There’s still an awful lot to be decided.
Jim Power, economist at Friends First, is pessimistic about matters. He believes that a credible solution to the eurozone crisis is needed: “My perspective on it is fairly clear. If a credible eurozone solution is achieved which restores stability, Ireland will be able to re-access international markets next year,” he says.
But he believes that currently there is no sign of “any willingness or capability to come up with a credible solution” from eurozone leaders. Despite that he does not think the government should be talking about a second bailout.
I don’t think Irish politicians should stand up and say we will need one. We should keep the head down, restore order and pay lip service so as that we can hopefully re-enter bond markets in 2013.
Trinity economist and columnist Constantin Gurdgiev is pretty certain Ireland will need a second bailout. He says while the Irish government may be able to borrow in small amounts from the normal lending markets, the cost would be exceptionally high when compared to facilities already on offer like the European Financial Stability Facility (EFSF):
The idea of the government being able to finance itself fully in private markets even by 2013 is bonkers at this stage.
He says that the cost of borrowing would have to be below five per cent but that the current threat of a Greek default is placing the category of sovereign debt, particularly for bailed-out countries, in the category of being a risky asset.
Gurdgiev adds: ”The claim that we are fulfilling the programme is fine but there is no pressure on the trade unions and vested interests in the economy. We need a concerted effort to develop a strategy on this that will get us out of this situation.”
SIPTU economist Marie Sherlock says the possibility of a second bailout is “a long way off” but notes that at this stage even the notion of it is being put in “very catastrophic and radical terms in that it would be the end of the world”.
She believes the gap between the interest rate Ireland will get in the open market and in the EFSF means that at the moment it’s unlikely the country will be able to head back to the markets in the middle of next year. But she adds:
There’s a lot of overexcited talk and people are getting ahead of themselves. I think we will need one [a second bailout] but we don’t need to be over consumed by it now.
Ronan Lyons, economist at Daft.ie and Oxford University, believes the lack of appetite to close Ireland’s deficit fast enough means that the markets are unlikely to look kindly at Ireland. While at the same time, he notes that the EU would like to see one of the bailed-out countries on the right track: “Ireland is the obvious candidate for that”.
I think while it’ll have a different name and possibly a different technical set-up, I wouldn’t at all be surprised if Ireland borrows from other governments, rather than other banks.
Lyons also notes that the portrayal of Ireland’s current programme is somewhat skewed. This is not so much a bailout as “a different bunch of lenders,” he says. “As soon as you decide to pay for some of your current spending with borrowing, you have to run your plans past the lender one way or the other”. While it used to be the markets Ireland had to convince, now it is just a different set of lenders.
“If you don’t want to be answerable in your public spending to anyone other than your citizens then balance your books and you won’t have to borrow,” he adds.
Paul Sweeney, the chief economist at the Irish Congress of Trade Unions, believes the whole question of whether or not Ireland needs a second bailout is “a red herring” when “we’re not even halfway through current programme”:
I actually think it’s a stupid question and it’s a hypothetical question. There’s much more serious things to worry about and we don’t know the future.
Sweeney also speculates as to whether new administrations in France and Germany (holding elections in 2012 and 2013 respectively) might be able to “get their act together” to come up with a credible solution to the eurozone crisis that would inevitably help Ireland’s case.
Finally, well-known economist and commentator David McWilliams – whose prescience on Ireland’s property bubble in 2003 is as scary as it is incredible – has long been a dissenter when it comes to the government’s economic policy. And when it comes to the coalition’s views on a second bailout he is no different. He’s certain that there’ll be a need for one and he even thinks there could be a third.
Earlier this month he told TheJournal.ie: “Ireland’s situation will only degenerate further as less money comes in and, against that background, there is zero chance of a return to the markets.”
But there could be light at the end of a seemingly dark tunnel of doom and gloom, there’s a top negotiator at our disposal. McWilliams joked: “Why not send in Michael O’Leary – someone who negotiates for a living. Tell him it’s his patriotic duty.”
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