Government ‘won’t default’ on debt

THE Government won’t default on its debts, said Cambiz Alikhani of the Iveagh Wealth Fund, which manages some of the Guinness brewing family’s fortune.

And the plan to narrow Ireland’s deficit, which is “going to hurt,” may have a “silver lining” by reducing borrowing costs, said Daniel Leigh, an International Monetary Fund economist.

The austerity plan is “unavoidable,” he told reporters after a presentation at Trinity College Dublin. “Ireland is doing the right thing.”

Last month a debt auction scheduled for next week was cancelled and another in November, after the yield on its 10-year Irish bonds rose to a record 454 basis points above benchmark German bunds on concern that the cost of bailing out the banks may push the state into bankruptcy.

“The problem will ultimately prove to be manageable,” Alikhani, an investment partner with the London-based Iveagh Wealth Fund said.

“My key message is that Ireland will not default.”

Ireland may need to spend as much as €50 billion saving the banks, led by Anglo Irish Bank, which has stoked concerns the country may need to seek external aid.

Finance Minister Brian Lenihan said this week that Ireland can “absolutely” avoid a bailout, as he weighs cutting welfare and pensions to narrow the deficit.

Ireland’s “sincerity” in exposing the scale of the bank bailout costs has “proved to be a dangerous thing as financial markets have reacted negatively,” Alikhani said. “A hard road still lies ahead but it will prove manageable.”

The premium investors charge to hold Irish 10-year debt over the German equivalent, Europe’s benchmark, narrowed to 397 basis points yesterday from 413 on Wednesday. It widened to a record 454 basis points on September 29.

Meanwhile, Moody’s Investor Services placed seven Irish residential mortgage-backed securities on review for a possible downgrade, after it downgraded Ireland’s sovereign rating last week.