Zero evidence markets worried about the election

Ireland has borrowings in excess of €200bn from domestic and international lenders via the bond markets.

It is our national debt, roughly €50,000 for every man woman and child in the state.

Some of it is attributable to bailing out the banks but mostly it is the cost of living beyond our means.

Whether we like it or not we are committed to behave to an economic model that keeps our lenders happy and willing to support us into the far future.

One thing that is certain is that we will not be released from the shackles of bond buyers any decade soon.

In some respect it is a good thing as it should lead to a degree of prudent fiscal management.

We currently can raise money from the bond markets at an interest cost of below 1% for 10 years.

That is extraordinarily cheap by historical standards. Partly due to the fact that the market is awash with cash from quantitative easing, but also due to the fundamental economic conditions Ireland currently enjoys.

Bond traders are a fickle lot and they want a return on their investment but also assurance they will be repaid.

The interest rate Ireland pays reflects this and currently we borrow at a lower rate than Spain or Portugal for example.

A stable government and economic conditions have contributed to a set of circumstances where the Irish economy is booming when growth is virtually non-existent in our European partners.

How much is down to the present government and how much is down to luck is debatable. We are a major benefactor of the low euro exchange rate, (good for exporters, good for tourism, good for multinationals) low interest rate, low inflation and falling oil price.

These are all international conditions brought about by the economic malaise in Europe and not attributable to domestic government policy.

The willingness of the Irish people to accept a level of austerity, work hard, pay taxes and be innovative is a really large part of the recovery story.

The government’s efforts with inward investments, keeping costs under control, and maintaining a favourable corporate tax environment has definitely helped.

No matter what way you call it the bond markets love us.

They love the economic story based on technology, tourism, pharma and agriculture.

They like the fact we export outside the eurozone, as well as inside it, and they like the fact that if the euro reaches par with the dollar, every American will visit Ireland in the next few years.

So, as we head into the election on Friday, is there an outcome that could derail the markets’ confidence in the Irish story?

It is likely we will not return the present government, or produce a result that leads to political certainty in the short-term.

We may face a period of negotiation which leads to a minority government, rainbow coalition or even another election.

The bond markets know this, they analyse continuously and reprice accordingly. As yet there is zero evidence they are worried.

Bond rates are stable below 1% for the 10-year benchmark.

Ireland’s debt profile has improved measurably over the last two years, our debt to GDP is now below 100% — a figure that compares favourably with our peers.

Buying Irish bonds is attractive to the major houses and if Mario Draghi introduces further QE measures in March demand for bonds is only likely to rise. What if we get a left-wing alliance?

Well, there are some political surprises being thrown up that nobody could have predicted.

Labour leader Jeremy Corbyn in the UK, and Donald Trump in the US for example.

The prospect of a left-wing alliance in Ireland is extremely remote but would it destabilise the economy and drive the bond investors away?

That was not the case in Portugal; yes, rates rose about a percentage point and if that happened in Ireland the cost eventually may be about a billion extra in debt servicing costs per year.

However, Irish debt is mostly funded long into the future, in fact this year we only need to re-finance about €9bn.

Regardless of who gets control of power they have to satisfy our lenders. The country cannot function in any meaningful way without access to the capital markets.

Whoever is in power is subject to ensuring economic conditions meet the approval of the bond market investors.

You can huff and puff in opposition or when electioneering but if you gain governmental control you will behave in a prudent fashion, I think deep down everyone knows that.

Peter Brown is director of education at the Institute of Investing and Financial Trading in Dublin.

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