Citi boss: ‘Negotiate a second bailout’

IRELAND should move to negotiate a second bailout agreement with the EU and IMF, one of Europe’s leading economists has advised.

Willem Buiter of international financial services giant, Citi, said instead of returning to the debt markets and borrowing money at a rate of 8%, Ireland should consider continuing borrowing from the troika at a rate of 3%.

He added, however, the Government should not attempt to secure a second bailout agreement “in a state of near panic, at the last minute”, but should negotiate a second loan agreement to have on standby in the event of not being able to borrow from the markets later this year.

His comments came as the EU/IMF/ECB troika return to Dublin today for its latest progress report.

According to Mr Buiter, the majority of eurozone-based banks are likely to be state-controlled by 2014, while also this year Europe’s triple-A rated economies will probably be downgraded.

Speaking at Citi’s annual global research day in Dublin, Mr Buiter said that deleveraging in the eurozone will “play out” in a variety of ways.

He said fiscal austerity will be a feature “almost everywhere” for years to come, as debt levels mostly have yet to start falling.

He added that Ireland, alongside Portugal and Greece, should see further restructuring of its sovereign debt this year, but external funding will make public sector deleveraging in the eurozone’s periphery states more gradual than it would otherwise be.

Mr Buiter also said that 2012 will see “downgrades for most, likely all EU/Eurozone triple-A economies”.

On the banking side, Mr Buiter said deleveraging will continue slowly, via more asset sales and the gradual running down of loan books.

“Official funding support and directed lending will slow deleveraging,” he said, before adding that “many — perhaps most — eurozone banks will be majority state-owned in two years’ time”.

Mr Buiter’s latest forecasts follow on from a detailed take on the future of the eurozone, which he published last month.

In that, Citi’s chief economist said any break-up of the eurozone — even a partial one, involving one or more of the weaker member states — would be “chaotic.”

“A full or comprehensive break-up, with the euro area splintering into around 10 national currencies would create financial and economic pandemonium,” Mr Buiter argued.

“It wouldn’t be a planned, orderly, gradual unwinding of existing political, economic and legal commitments and obligations,” the Citi economist added.

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