Cost of borrowing hits record 9.25%

THE cost of borrowing for the country continues to hit record highs, peaking at 9.25% yesterday, despite pledges of support from Europe.

As the crisis deepened Nobel laureate Joseph Stiglitz, a former chief economist with the World Bank, said Ireland is in a “dismal” position and declared there is little chance that the Government’s measures to reduce the budget and bail out the banks will be a success.

“The austerity measures are weakening the economy, their approach to bank resolution is disappointing,” the Columbia University economics professor said in a Bloomberg Television interview in Hong Kong yesterday.

Irish bonds have been in the grip of a major crisis for the past month, with influential economists here and overseas warning we will have to turn to the EU/IMF to bail us out.

Morgan Kelly of UCD, who flagged the property bubble years before, said this week the country is bankrupt.

Nicknamed ‘Doctor Doom’, Kelly warned that mortgage defaults would push the cost of the bank bailout up to €70 billion, against the Government’s projected €50bn cost.

International bond prices are reflecting that concern.

Investors are also unnerved by the German proposal to make bondholders take a discount on their holdings in the event of any restructuring in the eurozone.

European Commission president Jose Manuel Barroso signalled the EU was ready to act should countries such as Ireland require assistance as bonds continued to soar.

“What is important to know is that we have all the essential instruments in place in the EU and eurozone to act if necessary, but I am not going to make any speculation,” Mr Barroso said at a G20 summit in Seoul.

Greek Prime Minister George Papandreou saidhe hoped the markets will respond positively to Ireland’s attempts to deal with its financial situation.

Mr Papandreou, whose own country is currently the recipient of €110bn of EU-IMF rescue funding, was addressing a meeting of international broadcasters in Athens on the Greek economic crisis.

Back in Dublin, Finance Minister Brian Lenihan said Ireland won’t need external help to get out of its current difficulties.

Asked to explain the persistence of the bond crisis given the Government’s pledge to slash €15bn over four budgets, Mr Lenihan said the markets do not believe the estimated cost of the bank bailout published by the Government in September.

He relied on the NTMA for those figures and said that he accepted them as accurate.

Rumours circulating on Wednesday that the IMF has been called in to help sort out the Irish mess added to market concerns, the Sydney Morning Herald said yesterday.