New government ‘could renegotiate’ rescue package

A LEADING investment analyst says he believes that Ireland should be able to renegotiate aspects of the €85 billion bailout plan under a new government.

He ruled out renegotiating the deal overall but said the length of time over which the loans can be repaid and the interest rate charged to allow Ireland’s budgetary position a better chance to get back on track could be addressed.

Bill O’Neill, chief investment officer Europe, Middle East and Africa with Merrill Lynch, said restructuring was an issue that might have to be addressed if the pressures on the Irish economy become too great.

He said a new eurobond market would emerge from the current crisis, but the new bonds would carry strict terms and conditions.

But in the short term he said the “term and price of the debt” should be the focus of our concern.

From the point of view of the markets that would be seen as the “healthier space” for a new government to occupy, he said.

Irrespective of how the current euro drama plays out, Mr O’Neill said Ireland as a sovereign state would still have to resolve its fiscal crisis and get its debt/GDP into line to restore its credibility in the bond markets.

Overall, he was optimistic that the 2.75% growth targets set over the four years in the last budget are achievable, but he worried that the 5.83% average interest rate on the €85bn might prove too onerous.

The performance of our exporting sectors will be crucial in terms of underpinning our growth targets in the years ahead, he said.

Addressing the investment outlook for 2011 at a press briefing in Dublin yesterday Mr O’Neill noted that developing economies, and China in particular will account for two-thirds of the projected 4.5% global growth expected in 2011.

China will grow by 9.1% and India by 8.4%, with the US stuck 2.8% and Britain rising to 2%. With bonds yields topical at the moment Mr O’Neill said investors should opt for commodities and shares over government or corporate bonds.

Mr O’Neill said the 2007-2009 recession proved far deeper than previous downturns and recovery was much slower. The emerging economies have provided the engine of growth with savings rates across 2009-2014 forecast to reach 33% of disposable income.

With the US and Europe delivering slow growth, the latter will keep rates at historic lows while a euro rate hike towards the end of 2011 was possible if inflation becomes an ECB concern, he said.