‘Light at end of the tunnel’ promised

AS Irish bond rates stayed close to record highs yesterday, the European Commission’s internal market commissioner said he was confident Ireland would overcome its current economic difficulties.

“I am confident there is light at the end of the tunnel,” Internal Markets Commissioner Michel Barnier told the Oireachtas Committee on European Affairs in Dublin yesterday.

“If there is one lesson from the last year it is that we are all in this crisis together. What will help turn the Irish economy around again are exports and access to larger European markets.”

His reassurances did nothing to calm investor nerves as concerns grew over the ability of Irish banks to repay their debts.

By close of business yesterday the key banking stocks had lost substantial value as the budgetary crisis and the €6 billion cuts targeted for 2011 failed to calm market nerves.

The two major banks, Bank of Ireland and AIB had lost 12% and 9% of their already seriously diminished worth, while Irish Life & Permanent, which emerged from the bank meltdown relatively unscathed, lost 16% off its price.

In a strong defence of the Irish economy in his address to the Small Firms Association annual lunch Taoiseach Brian Cowen said it was “time to get some balance back into the debate for all our sakes.”

This country, today, is in a far stronger position to cope with the challenges than in previous generations and he insisted we would pull through in the end.

Elsewhere at a business briefing at the Burlington Hotel in Dublin yesterday, European Commission secretary general Catherine Day said bringing the public finances under control was a necessary starting point for economic recovery.

“There is no sound economic policy without that,” she said.

As the uncertainty continued to prevail Irish bond yields stayed close to record highs dashing any hope in the short term that the announced €6bn budget cuts would ease market fears.

By late afternoon the cost of Irish 10-year bonds stayed above 7.6% (761 basis points) this afternoon.

And the gap between the cost of borrowing to the German state and Ireland stood at 520 points, highlighting how far Ireland’s stock has fallen as a member of the eurozone group of economies.

Positive comments from the IMF failed to ease the pressure on Irish debt.

Caroline Atkinson, director of external relations, said in Washington that the IMF had not been in contact with Ireland regarding the possible provision of financial help.

Commenting yesterday Jim Power, chief economist with Friends First said if we do not get our act together within the next few months we could be forced to turn to the IMF to bail us out.

Professor John FitzGerald of the ESRI said yesterday the markets have exaggerated Ireland’s debt problems.

The state has up to €40bn of its own resources to call on in the period ahead if markets stay difficult.

As investors take a more balanced view he expects the bond crisis to ease and that Ireland will win back investor support.

Ireland has enough funding meet its needs until next July and is not under pressure to borrow at these near record levels, analysts said.