Ireland’s cost of borrowing hits record high of 7.4%

IRELAND’S cost of borrowing hit new highs yesterday as the cost of bonds passed 7.42%.

This is worrying news for the economy, but as the Government does not have to go back to the markets until January to raise funds, fears about our ability to repay our debts may have eased by then.

Economist David McWilliams said on Today FM’s The Last Word programme yesterday that the current drift in the cost of bonds would rule out our going to the markets in January to raise money to fund next year’s budget.

As things stand, the prospects facing Ireland is that it will be have to rely on the EU stability fund because it will not be able to pay the current crippling rates being demanded by international lenders to buy our bonds, he said.

Antoin Murphy, professor of economics at Trinity College Dublin, said the bond market “vigilantes” are sending a message to Ireland to “get your house in order otherwise you are going to have to borrow from the European Financial Stability Facility and in that case, the power will be taken away from our own politicians.”

Ireland is not unique with both Greece and Portugal also under the cosh as investors also fear the pressures on their budgets could result in all three defaulting on their debt.

The cost of insuring against a default on the debts of all three countries has also risen sharply.

Those who have faith in the economy believe it will stem the surge in bond rates providing that the four-year budget package and the December budget make it clear the Government is serious about getting its house in order.

Ironically commentators have said the identification of €15bn in budget cuts over the next four years added to concerns about our ability to work our way out of this crisis.

Last week an EU summit agreed a proposal on a mechanism to resolve debt crises in the eurozone, which has also worried investors. The markets feel this could increase the likelihood of debt defaults in some countries.

The Financial Times made Ireland’s funding plight its front page lead yesterday. It said the proposals emerging from the EU to force lenders to bear some of the pain if countries cannot payback their loans increased concerns about Ireland’s financial plight even further.