Fears raised about Irish bailout funding

EUROPE’s main bailout fund — the European Financial Stability Facility (EFSF) — may struggle to raise the remaining €9.5 billion in aid it is due to deliver to Ireland, according to a new report.

Out of Ireland’s estimated €90bn funding requirement for the period between 2011 and 2013, about €17.7bn is set to come directly from the EFSF; with the remainder coming from the EU, IMF and bilateral loans with other European countries.

To date, the EFSF has distributed nearly €7bn of its funds to Ireland.

Yesterday’s report, by UBS Investment Research, opined that the balance of the EFSF funds are now in doubt, but added that it should not mean Ireland’s overall funding needs are in danger.

“With markets now turning their attention to the very core — including Germany, Finland, Austria and the Netherlands, there is genuine fear the EFSF will struggle to raise the remaining €9.5bn for Ireland.

“That is not to suggest that there is an immediate funding threat to Ireland. There are a range of sources available, including the IMF and bilateral loans from the UK, Denmark and Sweden; but EFSF funding is critical for Ireland,” the report said.

UBS noted Ireland is in a stronger position to last year, but said the economy here still has a long way to go at a time when eurozone GDP is flat at best.

“More immediately for Ireland, one of its major emergency funding sources, the EFSF, is paralysed,” UBS added.

The Financial Times yesterday reported the EFSF’s strength could be seriously lessened due to the rise in overall borrowing costs in Europe.

In response, Dermot O’Leary, chief economist at Goodbody Stockbrokers, said: “For Ireland, the rise in borrowing costs is, undoubtedly, a negative, as it puts the country further away from achieving its eventual goal of returning to the market. However, that is still some time away, with the sovereign fully funded up to the end of 2013 in any case.”

Mr O’Leary noted every 1% increase in the funding costs for any lending facility costs Ireland around €200 million on the undrawn portion, “although it must be stated that funding costs — even at current levels — are still below what was anticipated at the time of the original arrival of the troika a year ago.”

A poll carried out amongst 30 economists by Reuters this week said it will take a number of years before the eurozone’s peripheral economies will recover meaningfully from recession and weak growth.