By Eamon Quinn
An election in Ireland this year would unlikely roil sovereign debt markets and the political risks with the exception of Italy have mostly abated in the rest of the eurozone, says a Moody’s Investors Service report.
In a generally upbeat assessment of the costs of borrowing for eurozone governments this year, the credit rating firm said the “anti-consensus movements” and political risks that upturned markets in the last two years such as the UK’s Brexit vote and the election of Donald Trump have abated, “but only the elections in Italy have the potential to have wider-ranging political consequences for the monetary union”.
Nonetheless, Moody’s assesses that Italy’s euro-sceptic Five Star Movement will fare well at upcoming elections but that it will fall short of securing a majority, while the political clash between Madrid and Catalonia and the outcome of the elections last year in Germany “underscores the impact that anti-consensus political movements can have on political processes”.
The eurozone economy will expand 2% in 2018, slow to 1.7% in 2019, it predicts, as the ECB’s low-interest rate regime “flatters” in the short term, though high government debt will again weigh “as the economic cycle turns and growth decelerates”.
“The underlying causes of the rise in anti-consensus movements have not been addressed — namely, economic insecurity and insufficiently inclusive growth. Real disposable incomes in Italy, Greece and Portugal have still not recovered to 2010 levels —they have only just reached that level in Spain”, saying that national data mask regional “economic hardship” blackspots.
In Ireland, Moody’s said the banks have stronger capital buffers but banking risks have not gone away totally across the 19-states of the eurozone, and the costs of healthcare and public pensions are relatively high in Ireland, as a share of GDP.
The outlook offers no hints about future upgrades by Moody’s of Ireland’s credit rating.
Currently at A2 with a stable outlook, Moody’s to the annoyance of the NTMA, has lagged the pace of other rating firms in upgrading Ireland.
At the depth crisis of the crisis, it rated Irish government debt as junk.