Expert claims Ireland ‘will survive crisis without EU or IMF support’

AS the cost of Irish borrowing fell yesterday a leading Irish economist said he expects the economy will survive the current crisis without having to resort to EU or IMF support.

Brian Devine, chief economist, NCB Stockbrokers, said in the short-term “we see a negligible chance of Ireland having to restructure its debt”.

Mr Devine said “we believe, regardless of whether it can re-enter the market on its own two feet, or with the assistance of the European Financial Stability Facility and IMF, Ireland will make good on all its debt maturing in that period.”

He expects the upward pressure on bond rates “will be halted as Ireland corrects its fiscal position over the next couple of years, either as a sovereign identity or under the wings of the European Financial Stability Fund (EFSF).

On the assumption of a 70% recovery rate, the Irish 10-year bond yield and 10-year CDS imply that there is an 85% probability of Ireland defaulting sometime in the next 10 years.

But he added that NCB thinks such a scenario overstates the probability of Ireland defaulting “and we, therefore, conclude that it is rational for investors to purchase Irish bonds as opposed to risk-free bonds at the prevailing rates. That is not to say that prices won’t fall further, given that the Irish bond market “is currently characterised by fear”, he said.

Commenting last night on RTÉ News Mr Devine said he expects the restructuring packages now on the table from the Government will restore stability to the economy and growth will start to emerge which will remove any threat to our solvency in the period ahead.

As Mr Devine made his positive forecasts, the Government was put on the back foot again after Reuters reported it was currently holding talks with the EFSF with a view to a bailout. Taoiseach Brian Cowen last night denied the allegation and said there was no basis for the report.

Donal O’Mahony, global strategist with the Dublin stockbroking group, Davy, cited the EU support Ireland has got in tackling its underlying banking and fiscal problems.

Mr O’Mahony warned of the dangers of “pressing the self-destruct button” and said the economy is not on the ropes as has been suggested by UCD economist Morgan Kelly and others.

He pointed to the supportive comments of EU Commissioner Olli Rehn on his visit to Dublin this week.

Mr O’Mahony said the attacks by Kelly and others was providing “cheap fodder to the Financial Times headliners and internet bloggers” who seem to be taking delight in the very serious challenges that have to be dealt with to restore balance to the economy.