Somers: Ireland will need second bailout

Ireland will probably need another European bailout according to the former chief executive of the National Treasury Management Agency, Michael Somers.

Mr Somers said yesterday that the EU, IMF and ECB troika may have to consider creating a special 30-year loan facility similar to the war-time facilities which the banks offered to Britain.

In reality, Ireland would be expected to repay the interest on these special crisis loans, but that the loan itself might never be repaid, he said in a radio interview with Newstalk FM presenter Ivan Yates.

Instead the loan would most probably be written off at some future date of greater financial stability in the EU. He said that Ireland is incapable of repaying its initial €30 billion bailout at the existing 8.6% interest rate.

Mr Somers said Ireland was unlikely to attract the level of investment the country needs without guarantees underpinned by the troika. He said this lack of investor credibility stems from Ireland’s low credit rating.

Mr Somers said: “I think we probably will (need a second bailout), because I don’t know where else the money is going to come from. What we have been getting in this bailout is cash to repay people who lent us money when they thought we were a better credit-rating outfit than we are. It suits people other than ourselves to give us this cash to repay bondholders.”

Mr Somers stressed that the big issue was Ireland’s low credit rating impeding any further hopes of Ireland ever gaining money from external investors.

Mr Somers said: “What we are up against is that our credit ratings are very low. One of the credit ratings agencies has us down at junk bond status.”

He added: “So you have to ask yourself who would buy our bonds. The only way somebody would buy our bonds would be if there was some sort of a guarantee given by Europe. Otherwise we are going to pay through the nose for them (any monies lent by future bondholders).”

On the subject of renegotiating the punitive 8.6% repayment rate for the current €30bn borrowed to shore up the debts of Anglo Irish Bank and other institutions, Mr Somers said that at this rate Ireland would never be able to repay that debt, and the best the country could hope for was to refinance the debt.

“What we have is a war without the guns. When Britain had wars in the past and they had to borrow a lot of money, they issued bonds which had no redemption date, they just paid a rate of interest,” he said.

“It may be that something along those lines will have to be devised for us, because I don’t know how we would ever pay back €30bn given all the other pressures on us, so maybe we should get some loan that would be repayable in 30 years’ time, or maybe never repayable, and what we are paying really is just a rate of interest on it at a much lower level than what we are paying at the moment.”